Before choosing a pension scheme you first need to weigh up the differences between the pension options available to you and your business.
A professional pension adviser may be able to help you make your decision. They can tell you about the costs and tax breaks and help you find a scheme which best suits your business. You cansearch for a pension adviser on the Find an Adviser website.
Occupational pension schemes are set up by the employer but are run by a board of trustees who hold responsibility for the payment of benefits to employees. There are two types of occupational pension scheme – money purchase (also known as defined contribution) and final salary (also known as defined benefit). Defined benefit schemes also include career average schemes and their variants.
Money-purchase pensions are made up of employer contributions and investment returns. The size of the eventual pension payable under these schemes is not guaranteed from the outset. The employer’s liability is limited to the contributions they make on behalf of each participating employee. If the investment returns are insufficient, the employer is not responsible for making up the deficit.
Final-salary pensions provide guaranteed pension sums when the pension matures. They too are made up from contributions and investment returns, but when the investments do not provide sufficient funds the employer is responsible for making up the deficit.
Final-salary pensions are now mostly offered by large companies and the public sector.
See this table of the advantages and disadvantages of an occupational pension scheme
Group personal pension
A group personal pension scheme is a collection of individual personal pension plans grouped together and run by the pension provider. This type of pension arrangement offers scope for you to tailor a scheme to meet your needs and those of your employees. Stakeholder pensions can also be grouped in this way.
See our table of the advantages and disadvantages of a group personal pension scheme.
Stakeholder pensions were introduced in April 2001. Minimum standards are set down in law ensuring that stakeholder pensions are flexible and portable with capped management charges. Employers with five or more employees are required to designate a stakeholder pension scheme if they do not offer them access to a good value company pension arrangement.
See our table of the advantages and disadvantages of a stakeholder pension scheme.
Relevant employees must be consulted about the company’s choice of designated scheme and employers must make payroll deductions of pension contributions for those employees wanting to pay into the scheme. Employers don’t set up the stakeholder pension scheme – the scheme provider does that.
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