Company Pension Schemes
A good proportion of the UK’s working population are members of a company pension scheme. Occupational pension schemes are those run by your current or former employer/s. These come in two basic types: defined benefit, where the benefits paid in retirement may be based on a combination of your age, length of service and the pensionable salary you are paid just before you retire – your final salary; defined contribution, also known as money purchase, which will pay out an amount based on the size of the fund, into which your contributions have been invested, at retirement.
Group personal pensions are becoming more popular with employers, these are low cost personal pension plans bought by groups of employees under the auspices of their employer. The latter are personal pension schemes organised as a group to share lower costs of administration. (See section on Personal Pensions)
Your employer may make a contribution to your occupational pension scheme in addition to deducting a percentage of your salary and paying it into the scheme. You may make extra contributions to your occupational scheme to boost your pension provision up to a maximum of the maximum limit (annual allowance), tax relief is available on pension contributions of up to 100% of your taxable earnings. (You may contribute more than your taxable earnings but no tax relief will be given on payments above that amount).
Eligibility to join a company scheme varies from company to company. Some allow their employees to join either straight away or very soon after joining the company, whilst others put in place conditions before an employee can join, such as a minimum number of years of service, or upon reaching a certain age.
There are two main types of company scheme, final salary & money purchase . They differ greatly in what they offer and how they work. At present, final salary schemes are the most common in terms of number of members, but many large firms are now switching over to the money purchase type and in particular group personal or group stakeholder pension schemes, because they are cheaper for the employer to fund .
From October 2012 there will be new legal duties on employers designed to help more people working in the UK save for their retirement.
Employers will have to enrol all their eligible workers into a pension scheme that meets or exceeds certain legal requirements, including the minimum amount of money they as an employer have to contribute.