Guide

Choose the right pension scheme

Comparison of pension schemes

Before choosing an occupational pension scheme you first need to weigh up the differences between the pension options available to you and your business.

A professional pension adviser may be able to help you make your decision. They can tell you about the costs and tax breaks and help you find a scheme which best suits your business. Find a local qualified adviser.

Occupational pensions

Occupational pension schemes are set up by the employer but are run by a board of trustees who hold responsibility for paying benefits to employees. There are two types of occupational pension scheme - defined benefit (also known as salary related) and defined contribution (also known as money purchase). 

Defined benefit pensions provide guaranteed pension sums when the pension matures. They too are made up from contributions and investment returns, but when the investments do not provide sufficient funds the employer is responsible for making up the deficit. Defined benefit pensions are now mostly offered by large companies and the public sector.

Defined contribution pensions are made up of employer contributions and investment returns. The size of the eventual pension payable under these schemes is not guaranteed from the outset. The employer's liability is limited to the contributions they make on behalf of each participating employee. If the investment returns are insufficient, the employer is not responsible for making up the deficit.

Group personal pensions

A group personal pension scheme is a collection of individual personal pension plans grouped together and run by the pension provider. This type of pension arrangement offers scope for you to tailor a scheme to meet your needs and those of your employees. Stakeholder pensions can also be grouped in this way.

Stakeholder pensions

Stakeholder pensions must meet minimum standards which ensure they are flexible and portable with capped management charges.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.