Corporate Pensions
Group Stakeholder Pension Plan
This type of policy is similar to a Group Personal Pension Plan but is a group of Stakeholder Pension Plans. The employer can contribute to the policy and they can negotiate special terms with the provider such as reduced costs and flexible contributions. The policies comply with the Stakeholder rules such as the maximum charge of 1.5% per annum for the first 10 years, falling to 1% thereafter. There is a legal requirement for firms with more than 4 employees that they need to designate a Stakeholder Scheme and allow all employees access to it. Should a member leave the scheme, they can continue to contribute to the policy if they wish. Tax Free Cash and a pension on the required basis can be purchased with the fund at retirement.
Group Personal Pension Plan
An employer can help set up a pension arrangement that groups together individual Personal Pension Plans known as a Group Personal Pension Plan. It has the advantage over individual arrangements that the employer pays into the plan and they can also negotiate special terms with the provider such as reduced costs or flexible contributions. On leaving employment, although the employer contribution would cease, the member can continue the policy on their own. At retirement there is the ability to take a Tax Free Cash lump sum subject to Inland Revenue set limits, with the residual fund used to purchase an annuity on the required basis.
Final Salary Pension Schemes (Defined Benefit)
These are schemes set up by an employer for the benefit of employees and directors. They are promised a pension in the future based on your level of service and salary at retirement or the date of leaving the scheme. The amount of pension promised may be lower if the employee leaves before the set normal retirement date or the scheme closes before then.
In most cases the employer bears the costs and liabilities of the scheme, though some employees are asked to make contributions. The attraction of this type of scheme is that there is a known benefit in the future. Often schemes offer increasing pensions in retirement to keep in line with inflation. A Tax Free Cash lump sum can be taken at retirement subject to Inland Revenue set limits. The scheme rules lay out the basis on which the pension can be taken.
Group Money Purchase Pension Scheme
This type of pension is set up by an employer for the benefit of employees and directors. They are also known as Defined Contribution schemes as the amount of benefits in retirement depends on the contributions paid. The premiums are paid into a fund which grows depending on the level of returns from the underlying investments and the amount deducted in charges from the fund. From the fund available at retirement, Tax Free Cash can be taken subject to Inland Revenue set limits. The remaining fund can then be used to purchase a pension which can include certain additional benefits such as a widow's pension and the pension increasing in payment to keep in line with inflation.
The employer will make contributions on behalf of the employee which he/she can add to. Some companies state that for an employee to join their scheme, they have to make a minimum level of contributions.
Executive Pension Scheme
Executive Pension Schemes are often set up for an individual director or a small group of them. They tend to be money purchase plans with Inland Revenue set limits on pensions, Tax Free Cash, and life cover. Employers and Directors have often used this type of pension as a tax efficient way of passing the company's profits to owners/directors.
Small Self Administered Scheme (SSAS)
This is an occupational pension scheme with less than 12 members which administers its own investments. It is usually set up by directors who tend to also be the trustees. There are Inland Revenue restrictions on trusteeship and investments. The attraction of SSASs is the ability for trustee members to manage their own investments such as holding their own commercial premises used by the company in their pension fund, holding company shares, and giving loans back to the company. Tax Free Cash and a pension can be taken as benefits at retirement subject to Inland Revenue set limits.
For information on the government's proposed changes to pension legislation in 2006, please use our Financial Services Enquiry form and request the 'Pensions - The New Tax Regime' guide.
Important Note: The value of an investment and any income from it can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future.
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