Workplace Pension Scheme

Many employers will provide staff with access to pension plans within the workplace. The plans they offer work in different ways as there are various different types of arrangement.

There are defined benefit schemes and defined contribution schemes.

Defined Benefit Schemes

The benefits provided under these schemes are determined by a member’s service and earnings. Examples of these schemes are:

Final Salary Schemes
Sponsored by the employer and run by a board of trustees. Members contribute to the scheme and the amount of pension payable is dependent the length of time served in the scheme and earnings prior to retirement.

Career Average Revalued Earnings (CARE) Scheme
This has similar characteristics to the final salary scheme with the exception that it matches each year’s benefit accrual to earnings in each year as opposed to the final year’s earnings.

Defined Contribution Schemes

These schemes provide retirement benefits based on the investment of contributions paid by both the employer and employee to build up a pot of money.

Group Personal Pension (GPP) Plans
This is provided by the employer for its employees. The amount of pensions payable on retirement is based on the amount of money paid into the scheme, how well the investment fund has performed and the annuity rate to convert the pot into a pension.

The policyholder can usually take up to 25% of the value of the fund as a tax-free lump sum with the remainder used to buy an annuity.

Group Self Invested Personal Pension (GSIPP) Plans
GSIPPs allow much greater freedom in the investment strategy and allows policyholders to appoint fund managers and other experts to manage the investment. It allows investment in higher risk and higher reward investments.

Group Stakeholder Pension Schemes
Similar characteristics to GPPs but designed to incorporate minimum standards laid down by the government. These standards include a cap on the charges associated with running the scheme and no penalties on stopping, altering or transferring the benefits to another scheme.

Small Self Administered Schemes (SSAS)
These are schemes usually set up for senior staff or directors and allow greater control over the scheme’s assets. The trustees of a SSAS can invest in funds of the pension in various investments including land as well as stocks and shares.

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