What is an Occupational Pension?
An occupational pension scheme is a pension fund usually set up by employers and run by trustees who look after the interests of members of the scheme.
There are two main types of occupational pension schemes, benefit defined and defined contribution occupational pension schemes.
What is a benefit defined occupational pension?
Also know as a salary related company pension scheme.
The size of a pension fund built up as a result of joining a salary-related or benefit-defined occupational pension scheme is governed by a variety of factors including the number of years that the employee has been a member of the scheme. The amount that you receive is also based on your pensionable earnings.
Contributions are normally made by both employer and employee.
Contributions towards the scheme are pooled and invested on behalf of employees with a view to increasing the size of the pooled fund. This can mean that the size of the fund will fluctuate.
If the value of the fund is increased the employer may choose to reduce its contributions to the fund for a short period, or the trustees may increase benefits given to members. It is the employer's responsibility to ensure that any deficit in the fund is covered, and that the employees receive the full agreed pension.
The benefits that employees enjoy through this form of occupational pension include rising pension benefits in line with rising salary, and a pension income that usually increases in line with inflation (or by a fixed yearly rate).
What is a defined contribution occupational pension?
Also known as a money purchase company pension scheme.
The size of a pension fund built up as a result joining a money-purchase or defined contribution occupational scheme is also linked to the pensionable earnings and the number of years of membership.
Contributions are normally made by the employee, but not always by the employer.
Funds are usually held on behalf of each member individually, but may also be pooled as with a salary related or benefit defined occupational pension.
The fund is often invested in stocks, shares and other investment opportunities and the final amount that you receive is also linked to the level of success that those investments enjoy.
For further information on occupational pension schemes, and to find the best pension scheme for your needs we recommend you speak to a independent company pension advisor for a free initial consultation.
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