Employee Pensions

Group Personal pensions

Group personal pensions are a simple way for an employer to organize some form of pension provision for employees, as an alternative to setting up an occupational pension scheme.

Each member joining the scheme will have his own pension policy, all grouped with one provider. The individual policies are portable, ie transferable should the employee move away from the company.

The employer does not have to contribute but can pay differing amounts to different members contribution. Payments are usually made by payroll deduction net of basic rate tax.

For the employer there are no separate national Insurance records to keep as a result of running the scheme and if someone leaves, they simply take their plan with them.
The main advantages to the employer of a group personal pension scheme over occupational schemes lies in the simplicity of administration and lower costs, as well as the perception of being seen to be a 'caring' employer.

The provider generally holds the costs of the pension scheme itself within the plan and consequently the employee pays indirectly.

The advantage to the employee is in the provision of pension itself and its portability.

The employee can also use his own plan with the group personal pension to contract out of S2P (State second pension) if he wishes to do so.

Stakeholder pensions

Since 6 April 2006, occupational scheme members can also contribute to any number of registered schemes, including stakeholder or personal pension plans.

The advantages of these are that they are normally cheaper than FSAVCs (Free Standing additional voluntary contributions), they are also portable, there is a fund choice and flexibility and they are independent.

The disadvantages are that they may be more expensive that an AVC (Additional voluntary contribution) because the individual bears all of the charges and that higher rate tax relief must be claimed separately.

Executive Pension plans (EPPs)

Executive pensions are also know as individual pension arrangements and director pensions, they are money - purchase arrangements that operate in small and medium sized companies. Provided by insurance companies, they offer a relatively simple way for businesses to set up schemes with the insurer handling many of the administrative and regulatory requirements.

Their flexibility is demonstrated by the facility for the employer to tailor contributions for each individual. Because the maximum levels of contributions can be calculated using employee's total remuneration, the employer is able to fit this particular benefit to employee remuneration packages - this is particularly relevant for directors and executives.

Small self - administered schemes (SSASs)

Small self - administered scheme (SSAS), which is particularly useful for the owner/ director of small or medium - sized companies.

It is, in essence, a group money-purchase plan for the benefit of less than 12 members. The important difference from the executive pension plan is that the SSAS can make investments outside of insurance funds.

One of the most common uses of the SSAS is for the owner/directors of a business to buy the company's premises though the pension scheme. In this way, any income or gains from owning the building will be sheltered from income, corporation or capital gains taxes and the fund will have an increasing asset.

(Residential property will not be an appropriate investment since it will be subject to punitive tax charges.)

The pension scheme can borrow up to a maximum of 50% of the net assets. It can also lend up to 50% of the fund value to the company. Any such loan must be secured by first charge on the company's assets and carry an interest rate of at least base rate plus 1%.

The pension scheme can invest up to a maximum of 5% fund value in the sponsoring company's shares.