PRIVATE & OCCUPATIONAL PENSIONS


Most employers provide staff with access to a pension arrangement.  There are different types of arrangements available, with each working in a different way.

There are defined benefit schemes.  These can be final salary or career average earnings related schemes.  The benefits provided at retirement are based on the member's service and earnings.

There are also defined contribution schemes.  These can be money purchase schemes, group personal pension plans or group stakeholder pension schemes.  The benefits provided at retirement are based on how much is paid in and how the chosen investment performs.

Personal & Stakeholder Pensions

Personal pension plans (PPPs) and stakeholder pension schemes (SHPs) are defined contribution arrangements.

They are essentially investment policies that provide an income in retirement.  They are available any UK resident who is under 75 years of age and can be bought from insurance companies, high street banks, investment organisations and some retailers (i.e. supermarkets and high street shops).

Policyholders contribute to their plan, the money is invested and a fund is built up. The amount of pension payable when the policyholder retires is dependent upon:

  • the amount of money paid into the scheme;
  • how well the investment funds perform; and
  • the 'annuity rate' at the date of retirement. An annuity rate is the factor used to convert the 'pot of money' into a pension.

Currently, the policyholder can retire at any age between 50 and 75. From 6 April 2010, the minimum age will rise from 50 to 55. When the policyholder does retire, they can generally take up to 25% of the value of their fund as a tax-free lump sum. The remainder of the fund must be used to buy an annuity with an insurance company.



 

Scottish Transport Credit Union Limited
Authorised and Regulated by the Financial Services Authority

This document is for guidance only, and professional advice should be obtained before acting on any information contained herein. We cannot accept any responsibility for loss occasioned to any person as a result of action taken or retained from in consequence of the contents of this publication.