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Group Personal Pensions
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Group schemes operate like individual personal pensions, but usually offer lower charges. Employers often set up group personal pension arrangements when they do not wish to manage their own schemes.
Just like defined contribution schemes, your benefits are based on contributions made by you and your employer, together with investment returns achieved. However, you gain the advantages of a personal pension in that the policy is written in your own name rather than that of your employer. If you change jobs, you can continue contributions yourself or with help from your new employer. You also have greater flexibility over the age at which you can take your benefits than you would have in a conventional company scheme. On retirement you can choose the form in which you take your pension.
Stakeholder pension schemes
From April 2001 all employers have had to make a stakeholder pension as a default scheme available for staff who do not qualify for the main company scheme. Stakeholder schemes offer an inexpensive savings option and in time may replace defined contribution occupational arrangements. But for most employees, company arrangements of the defined benefit type are likely to remain more advantageous than stakeholder pensions.
Should you join?
It is not compulsory to join your company pension scheme, but if your employer is prepared to make regular contributions for you it is very unlikely that you would get a better deal through an individual personal pension. If, however, you plan to move jobs frequently, and those jobs are not with companies that offer a group scheme, then a stakeholder pension or a personal pension may be worth considering. You should start by asking whether your employer would be prepared to contribute to a personal plan and then seek the advice of an independent financial adviser.
If your company pension scheme is not contracted out of SERPS it may at certain ages be beneficial to take out an additional personal pension, so as to benefit from the contracting-out rebate (see State pensions and contracting out)
Understanding your scheme
Most schemes have a minimum age limit or there may be a waiting period of months or years before you are allowed to join. Your scheme handbook will tell you the benefits of membership-including your entitlements on retirement, death or leaving service and the level of life assurance and disability protection provided through membership of the scheme. It should also tell you what facilities are available for making additional voluntary contributions (AVCs) to boost your pension.
Since the Maxwell affair, UK pension law has been tightened up to protect the rights of members of company schemes. Trustees cannot invest more than 5% of the pension fund into the business of the sponsoring employer and they must produce regular reports on the status and performance of the pension fund.
Also, unless the members agree to a different approach, a minimum number of trustees must be elected by the members rather than appointed by the company. If you wish, you can stand for nomination and election as a trustee of your company pension scheme.
What happens at retirement?
You may be able to take part of your benefit or retirement in cash form free of tax. The amount of cash will depend on the type of scheme, when you joined it and whether it is contracted out of SERPS. The rest of your benefits must be taken in the form of a pension.
In defined contribution schemes, as in personal pensions and stakeholder schemes, your pension will depend on annuity rates, so it pays to shop around and take advice. Timing is critical because annuity rates (which dictate the pension you can buy with your fund) can go up and down--the wrong annuity decision could mean losing potential retirement income.
Retiring early
If you plan to retire early, your pension will be lower for two reasons:
you will have fewer years of service qualifying for pension
your pension will be payable for longer
Leaving your scheme
Benefits can increase dramatically during the last few years of service and the converse is that, for example, retiring five years early could reduce your pension by as much as 25%. Beware of temptations to reduce your working week as you near retirement, unless you can get written agreement that it will not affect your pension entitlement.
If you move to another employer before retirement you have a number of options open to you:
leave your pension where it is
transfer your accumulated benefits (known as a "transfer value") into your new employer's scheme
transfer your benefits into a personal pension, a stakeholder plan or a buy-out bond (also known as a "Section 32 Plan
group personal pension
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