Trust Based Pension Schemes
Occupational Pensions are established under a Deed of Trust, and while the employer has responsibilities under the Trust, all control over the funds within the Pension Scheme lies in the hands of the Pension Trustees.
The duties of employers and Trustees in respect of Occupational Pensions are extensive and onerous.
Final Salary Schemes (sometimes called Defined Benefit Schemes)
Final salary schemes can be incredibly generous to the employee because the employer is guaranteeing the benefits. These schemes pay employees a percentage of their final salary on retirement (dependent on their length of service). The employee can be required to contribute towards the pension but whether or not this is the case, the employer is obliged to make whatever contributions are necessary to provide the scheme benefits. It is for this reason combined with lower investment returns and reduced mortality that many of these schemes have been either wound-up or closed to new entrants in recent years. These schemes often come with certain health benefit add-ons.
Money Purchase Occupational Pensions (sometimes called Defined Contribution Schemes)
Money Purchase schemes are less onerous to employers than Final Salary Schemes because there is no guarantee being provided to employees as to how much the ultimate pension will be worth. The employer therefore knows what the cost will be for providing the scheme and the ultimate pension level will be determined by factors such as: the contributions; investment returns; charges; taxation; and annuity rates. These schemes are complex in concept and operate with high employer and trustee involvement.
Drawing Benefits at Retirement
Pension schemes are structured to accumulate pension funds, which are to be used at the member’s retirement to pay the cost of providing benefits. The individual members normally have a great deal of control over timing, and how these benefits are structured (eg in terms of pension commencement, lump sum, indexation of benefits etc). MacRobins Ltd would offer consultation and advice as necessary for members approaching retirement.