Occupational Pension Schemes

Types of occupational pension

Company pension schemes vary from company to company. Your scheme is likely to be one of two general types – a 'salary related' or 'money purchase' scheme.

Salary related scheme (final salary)

In a salary related scheme the amount you get is based on your salary and the number of years you have been in the scheme. These schemes provide valuable retirement benefits which can form an essential part of your retirement plans.

Schemes run on this basis can be from the Public Sector or Private sector and it is important to understand the benefits you are entitled to.

There are many issues facing Final Salary Schemes owing to the large liabilities they have to pay out promised benefits to previous and current employees. It is important that you understand the funding status and position of the scheme you have benefits with and continue to receive updates from the scheme trustees.

Money purchase scheme

A money purchase scheme is based on how much has been paid into the scheme and how well the money has been invested. On retirement, your fund is used to provide your pension, usually by buying an annuity (a regular income for life).

Within an occupational money purchase scheme the benefits are generally earmarked for you as an individual and you have your own identifiable fund value. It is important to understand how much that is and what it will generate you at retirement. Your Employer or previous employer, should hopefully have negotiated a good deal with regards to charges and the fund options open to you, however these schemes are always important to review and understand as part of your overall retirement planning.