Occupational (Workplace) Pensions
Occupational pensions are also known as workplace pensions and are arranged by employers rather than the state. The employer and usually the employees, contribute to the fund.
The two main types of occupational pension are:
- Defined benefit schemes (such as final salary schemes) where the income on retirement is effectively guaranteed.
- Defined contribution (or money purchase) schemes where the income on retirement depends on factors such as stock market performance, the amount of money contributed and the level of fees payable.
There are also certain 'hybrid' arrangements, for example 'cash balance' schemes, where employers offer some limited guarantees over levels of eventual income.
The legal position
A substantial and ever expanding body of legislation governs employers' pension arrangements.
Pension contributions and benefits are influenced by HM Revenue & Customs limits. Further details and the latest figures are available from the HMRC (see the Useful contacts section below).
One major recent development has been the implementation of 'auto-enrolment', requiring all employers to automatically enrol eligible workers into a qualifying workplace pension scheme (unless the worker chooses to opt out) to which the employer must contribute.
Under auto-enrolment, jobholders may be enrolled into an existing occupational pension scheme if it meets or exceeds certain minimum requirements.
The auto-enrolment duty is being phased according to employer size, starting with the largest. By April 2017, all existing employers will have enrolled their staff, followed by all new organisations by February 2018. Contribution levels are also being phased in, increasing to a total minimum contribution of 8% (with at least 3% from the employer) by October 2017.
From October 2015, depending on their size, employers will be required to re-enrol all eligible employees who have subsequently opted-out of the qualifying pension.