Company Pension Scheme FAQ

What Is A Company Pension Scheme?

Many companies offer a pension scheme as part of their benefits package, to attract new employees and retain existing staff. The type of scheme offered differs depending on the size of the company and the importance they put on the scheme. Employees are not obliged to join a company pension scheme although employers with more than five employees are obliged to provide one.

A defined benefit scheme is still offered by many companies and is one of the best types of pension to have.

What Is A Defined Benefit Scheme?

A defined benefit scheme, or final salary scheme, is one where your pension is based on your final salary and the number of years you have worked for the company. Many companies operated this type of scheme and, although it is now in decline owing to changes in the accounting rules, it is still offered by many companies and is one of the best types of pension to have.

What Is A Money Purchase Scheme?

Offered by employers as an alternative to the defined benefit scheme, the money purchase scheme allows employees to build up a pension fund, which is invested on their behalf, usually in the stock market. Both the employer and the employee contribute to the scheme, but the amount of income received at retirement is dependent on the performance of the investment and the annuity rates at the time.

What Is A Stakeholder Pension?

Every company employing over five people is obliged to provide a stakeholder pension scheme. These schemes allow employees to make flexible contributions to a pension fund, which is managed by a third party. Employers may make a contribution to the fund, but are not obliged to do so.

How Much Should I Pay Into My Fund?

Pensions advisers have a rough guide as to how much money you should pay into your fund each month. If you half your age, then that is the percentage of your monthly salary you should be saving. So, if you are 38, you should be saving 18% of your monthly salary. If you are 40 and you haven't made any provision for retirement, you may need to save more than this in order to build up a big enough fund to provide you with enough income.

What Happens When I Leave The Company?

When you leave the company, your company pension is frozen. This means that neither you nor your employer can pay any more money into the fund. Your company will still administrate your fund and you will be paid a reduced income on retirement. Alternatively, you could choose to transfer all the funds from your current corporate pension to your new scheme, or to a personal pension plan.

If you are considering changing your pension arrangements, effecting a pension transfer, or need advice on starting a pension, then contact our pension transfer advisors. Fully qualified, regulated by the FSA and independent, they can advise you on the best course of action to ensure a comfortable retirement.