Agafonov Egor N 1 -1
Plan of presentation Two types of pension scheme Pension scheme for employers The costs Some important points Getting help
There are two types of occupational pension scheme: benefit schemes Defined benefit schemes provide a pension based on your salary in the years just before retirement and on your years of membership of the scheme. The maximum pension you can earn is two-thirds of your final year's salary. Most schemes provide an annual pension equal to a proportion of your pay which depends on your years of membership.
Defined contribution schemes In defined benefit schemes your employer makes an openended commitment to guarantee your pension benefits. In defined contribution schemes your pension is based on: -the amount of contribution paid by you and your -employers -the investment return achieved -annuity rates in force when you retire -This means that your pension will suffer if investment returns are poor or if the value of contributions is eroded by high inflation in future years. On the other hand you will directly benefit if investment returns are good.
Pension schemes Companies are not obliged to set up their own company pension schemes, but the Government has said it intends to encourage company schemes as the best way of providing pensions for employees
Costs A Employers typically pay between 3 and 7 per cent of employees’ pay into their company money purchase schemes. Employees typically contribute a matching amount, deducted from their pay packets. Employers’ contributions to a final salary scheme average between 10 and 15 per cent of payroll with employees contributing about 5 per cent of salary.
Some important points ◆ As long as the scheme is approved by the Inland Revenue, employer contributions can be set against corporation tax. ◆ Some schemes are non-contributory. Only the employer pays into the fund. ◆ Employers are not obliged to make contributions to stakeholder pensions, but they may if they choose to do so.
Getting help ◆ A company’s agent or sales person will recommend plans from the company’s portfolio or that of other partner providers, which they believe to be suitable. Independent financial advisers will search a variety of providers and recommend a suitable plan. ◆ Some will receive a commission if you buy from them, while others will charge a fee. ◆ Check with the Financial Services Authority that the company or adviser is regulated under the Financial Services Act