Occupational pension schemes or company pension schemes as they are sometimes known are set up by the employer to provide their employees with retirement pensions and other benefits such as life assurance.
They are set up as a trust and run by trustees. Many employers provide staff with access to a pension arrangement and whilst employees don’t have to join it’s usually a good idea to do so because of the benefits it attracts.
Automatic enrolment occurs when a worker is enrolled into her/his employer’s qualifying occupational pension scheme. This will happen automatically unless the worker actively opts out of automatic enrolment.
By 2018, all eligible workers will have to be automatically enrolled into a qualifying pension scheme. The date will depend on the number of workers employed by that employer. A worker will be eligible if s/he:
- is aged between 22 and State Pension age
- has a contract (verbal or nonverbal) that constitutes them being a ‘worker’ (receives reward to do work or personal services, whether that be money or benefit in kind)
- earns above a current minimum annual amount (currently £10,000).
- is usually based for work in the UK
Employers can choose which qualifying scheme to use, and they can choose to use the NEST (the National Employment Savings Trust). A qualifying scheme must meet minimum standards either through the benefits it provides to the worker or through the amount of contributions paid into it by the employer. The scheme must also provide automatic-enrolment for all eligible workers, and for a new worker if s/he becomes eligible.
Further information about automatic enrolment for workers and who is eligible is available on the Pensions Advisory Service website at www.pensionsadvisoryservice.org.uk. Further information about automatic enrolment for employers is available on the Pensions Regulator website at www.thepensionsregulator.gov.uk. Further information about the National Employment Savings Trust (NEST) is available on the NEST website at www.nestpensions.org.uk
Occupational pension schemes are either
- Contributory, where you give part of your earnings, in addition to your employer’s contribution or
- Non-Contributory , where your employer makes all the payments.
In either case, by law, your employer has to pay for a substantial part of the administration costs of the pension scheme. There are also tax benefits associated with these types of pension.
There are two main types of occupational pension scheme
- Final salary (defined benefits), in which the pension is a proportion of your salary at or near retirement date and is linked to the number of years you have worked for the particular employer; or
- Money purchase (defined contribution), in which the pension is based on the total value on retirement of the money paid into the scheme and on how the investment has performed.
Where an individual has an occupational pension scheme but would like to contribute more, they can increase this by making additional voluntary contributions.
Your employer may offer a stakeholder pension or a personal pension through a group personal pension arrangement. These pensions are not called occupational pensions even though the employer may contribute.
Benefits to the employee
Your employer normally contributes;
- Tax benefits
- Often you get other benefits, such as:
- Life insurance which pays a lump sum and/or pension to your dependents if you die while still in service;
- A pension and or tax-free lump sum if you have to retire early because of ill-health; and
- Pensions and or tax-free lump sum for your spouse and other dependents when you die.
Changing jobs
When you join a new firm, which has a company pension plan scheme, if you have an existing personal pension it is very likely that joining the occupational pension would be better for you. There are a number of options open to you but always check the terms of the new one you may be joining, or you may find you lose out somehow and always check what effect leaving your existing Occupational Pension Plan may have as there may be penalties depending on what the terms are.
Options could include:
- Transfer your existing pension fund to your new employer’s pension fund
- Stop paying into the existing fund but leave it to carry on growing.
If you are thinking of leaving an occupational pension for whatever reason you should consider the implications of this very carefully, and where ever possible to take advice from a professional independent financial advisor.
The Pensions Advisory Service (TPAS)
This is an advisory service on both occupational and personal pensions. Advice is given through a network of voluntary unpaid professional advisers. The service is free and confidential. TPAS can:-
- assist with queries relating to the provision of specific pension schemes, calculation of benefits, refund of contributions, preserved benefits, part-time employment, early retirement, the position following a firm’s merger or other changes in the scheme, and benefits for dependents
- provide general information about occupational pensions, for example, the effects of mergers, takeovers and insolvency on schemes, and the discretionary powers of trustees
- advise on the choices available regarding whether or not to join a scheme, paying additional voluntary contributions, allocating a pension to a dependent, or transferring pension rights
- provide advice on complaints relating to the administration of personal pensions, for example, delays in payment of benefits, misquotations or errors in recording contributions
- provide a mediation and conciliation service to help resolve complaints.
The Financial Services Authority (FSA) regulates the financial services industry in the UK. It also provides basic information and advice about a range of financial services, including pensions.
For more detailed information about occupational pension’s schemes you can use the web links below.
workplacewellbeing.com assumes no responsibility for the content of linked websites.
