Corporate Pension Schemes
Larger employers (and some smaller ones) run their own
pension schemes for employees. These fall into two broad camps: final
salary schemes and money purchase schemes.
Final Salary
In the former case, you receive a pension based upon
the number of years you have been within the scheme, and your salary upon
retirement. These schemes have a "factor", such as 40ths (rare),
60ths and 80ths. The fraction of your salary you receive in retirement
will be the number of qualifying years times the factor, e.g. 24 / 80ths =
30% final salary.
In the latter case, you and your employer contribute to
a scheme and the final pension is dependent upon the contributions made,
investment growth of the pension fund and annuity rates prevailing at the
time.
How much will I get?
The amount of income you can expect per year is
worked out using a formula, typically 1/60th or 1/80th of your final
salary for each complete year of service.
Example:
The company might pay you 1/60th of your final salary for every year that
you work. If you have worked for 30 years and your final salary is £40,000,
you will receive 30/60ths of £40,000, which is £20,000 per year. This
pension will normally be indexed-linked to keep it in line with inflation.
The
amount of tax-free cash is the greater of 3/60ths for each year of service
and 2.25 times the initial pension.
Money
Purchase
The majority of Company schemes running
today are money-purchase. This means that contributions are made by you,
the company, or both. See Pensions
Simplification for contribution limits.
Whilst the larger schemes are likely to
carry on for years, the costs and administrative burdens for companies
maintaining their own employee pension schemes has led many to re-examine
their money purchase pension objectives, often concluding that a Group
Personal Pension scheme is preferable for many reasons. To discuss and
request an efficiency review on your company's occupational pension
scheme, please call or email us and we will be happy to arrange
this.
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