Irrespective of your age you need to have a retirement plan, however the younger generation tend to be put off, because the complex nature of pensions can make pension planning daunting. Below we will have a brief look at the types of occupational pension schemes out there and the way they work.
What are the types of occupational pension schemes out there?
Typically occupational pension schemes fall into three main categories, which are:
• Contributory occupational pension schemes
• Non contributory occupational pension schemes
• Open stakeholder schemes
A contributory pension scheme involves you paying a percentage of your salary into your pension scheme, in addition to your employers contribution. A non contributory scheme would involve only your employer putting into your pension scheme. The last option is the stakeholder occupational pension scheme – which employers do not (by law) need to put anything into .These are usually the least popular form of occupational pension scheme!
It is advisable to join an occupational pension scheme if you get the opportunity – although you will be putting in money from your wages it’ll mean that your employer will also have to put in money in addition to the salary you currently receive. You can think of it as money saved for your future.
There are a number of advantages of joining an occupational pension scheme:
•If you stop paying into your pension scheme if you change jobs, you can leave it to continue to grow
•If you believe your contributions will not provide you with a big enough return to retire comfortably it is possible to elect to make further contributions. This is known as Additional Voluntary Contributions, which is commonly abbreviated to AVCs
•Occupational pensions will usually (but not always) give a generous death benefit if you die before the age of retirement
If you work for a large company then chances are they will have an occupational pension scheme and it is crucial that you make the most of this. If you work for a smaller company it is not as likely that they will offer an occupational pension scheme and it is advisable to consider a private pension scheme.
There are a few different kinds of occupational pension schemes, these are:
•Final Salary Schemes – once you retire you’ll receive a particular amount of pension. Not many company’s offer this type of pension nowadays, it is typically only found in the public sector these days.
•Money Purchase Scheme – the amount of money you will receive on retirement will be dependant on the amount of money paid in, how your investment funds perform and the annuity rates when you reach retirement.
Although it is not compulsary that you join your workplace occupational pension scheme, as you have seen it could be beneficial to do so. It is crucial that you prepare well for your financial security in your retirement, what better way to get this started than to join an occupational pension scheme.
This article was written on behalf Robert Bruce Associates, independent financial advisors specialising occupational pension and annuities. For more details, please visit www.rbaifa.co.uk