By: Kevin Stelfox
In General there are two types of Company Pension Scheme in the UK:
Salary Related Pension Scheme
This is where your retirement income will be based on the amount of wage you receive at the time you retire and the number of years you have been in the scheme.
Money Purchase Scheme
This is where your retirement income will be based on how much has been paid into the scheme and how well the money in the scheme has been invested. On your retirement the fund that has accumulated is used to buy an annuity which is a regular income for life.
Company Pension Plans can be funded by both the employee and the employer. Some Company Pension schemes are non-contributory, which means that the employer pays into the scheme and the employee is not expected to contribute.
Access to Schemes
Employers do not have a legal obligation to provide access to an occupational pension scheme. They do however, if there are 5 employees or more have to offer employees the chance to take advantage of a stakeholder scheme if you are not offering an occupational arrangement. Even in these cases, however, there are a number of exemptions.
Primarily, employers with fewer than five staff are not obliged to offer a stakeholder pension scheme. Similarly, rather than offering a stakeholder scheme you may prefer to provide access to a personal pension plan. However, in order to qualify for the exemption provided in law, you must make contributions to this personal plan, at a rate that is equivalent to a minimum of 3% of each employee’s salary.
Personal accounts
Due to be implemented in 2012, Personal accounts will be a universal, government-backed pension scheme whereby all employees will be automatically enrolled into a company pension scheme, unless they tell their employer they do not wish to join.
This new pension scheme is aimed at low-to-medium earners who do not currently have access to a good company pension scheme.
Employers who already offer a good pension scheme, with an employer contribution of at least 3 per cent, will be exempt from having to enroll workers into personal accounts.
Employees will be required to pay in 4 per cent of band earnings and together with the employer’s contribution of 3 per cent and 1 per cent tax relief from the government, the scheme will provide a total contribution of 8 per cent.
A Personal Accounts Delivery Authority (PADA) is currently working on the implementation of personal accounts, scheduled for 2012, so full details of the administration, charges and the range of funds that will be offered are not yet available.
There is some concern that employers offering good company pension schemes will be tempted to ‘level down’ to contributing only 3 per cent of their employees’ salaries because this will be the statutory minimum.
Group Sipps
Another type of company pension are found in certain circumstances. Group self-invested personal pensions (Sipps) are a new development in the self-invested personal pension market and are set up as very small occupational pension schemes, typically for small owner/managed businesses, or family businesses. They can be useful as the pension fund can be used to purchase commercial property which is used by the business. This is tax-efficient and the SIPPs can also make loans to companies.
About the Author
Based in the UK, Pension Solutions act as introducers to Independent Financial Advisers (IFA) who give specialist advice on Company Pensions and starting a Company Pension Scheme – For Specialist Company Pensions Advice call 0800 043 6701
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Article Source: http://www.articlesbase.com/ – Uk Company Pension Schemes – A Quick Guide