Occupational schemes

Company pensions are set up by employers, for their staff. They can be “final salary” or “defined benefit” schemes. These are schemes where a Trust is set up for the members. Money is paid in from the company, the members or both. The money is then invested.

Members get benefits in accordance with their contractual terms (typically a proportion of the final salary for each year that they have worked there). These are expressed as a pension value, but normally members can opt to reduce their pension by taking some of the money as a cash lump sum on retirement.

The fund is monitored by Actuaries, whose job is to determine whether or not there will be sufficient assets to meet the pension payments. If the fund is doing well, the company, and in theory even the employees, might be able to reduce or stop their payments. If the scheme does badly (e.g. its investments fall in value) then the COMPANY is expected to make up any shortfall.

Alternatively, an employer may set up a "defined contribution" or "money purchase" scheme. In this case the monthly contributions are put into a fund earmarked for that particular employee who, when he or she retires, is able to take a tax free lump sum and, with the balance, buy an "annuity."

Annuities are sold by pensions providers and insurance companies and guarantee the policyholder an income throughout his or her retirement.

 

Back

Personal pensions

Stakeholder pensions