Pension Schemes

 With profits pension

A “with profits” pension scheme is an insurance type policy, the pension scheme operates by paying bonuses into the fund during successful investment years, this is designed to make up for performance during poorer investment years. This type of scheme is generally most suitable for those who don’t have a works pension or those who want to contribute over and above their current pension. The advantages of this scheme are increased flexibility and control over where you invest as well as regular portfolio reviews.

However there are financial penalties if you wish to exit this pension plan, furthermore this pension scheme is severely affected by the fluctuations in the stock market; this will result in reduced bonus or in the most extreme cases non-receipt of bonuses.

In recent years the “with benefits” pension has performed worse than most with little or no bonuses being added. Falling equity markets have resulted in negative returns on the pension fund and many of these funds have already been spent subsidising bonus rates promised to investors. These means that some “with benefits” pension schemes have been performing at minus rates. Contact us today for a free 5 minute review from one of our partnered independent financial advisor.

Company pension schemes

In the UK there are two general types on company pension scheme and they vary from business to business, these are a “salary related” scheme or a “money purchase” scheme.

A salary related pension scheme is based on your salary and the number of years you have been working for the company.

However it is important to note that final salary pension scheme benefits are not guaranteed and are simply a promise from the employer that they will contribute enough to your pension to provide the pre-calculated amount. In order to protect those involved in final salary pension schemes the Pension Protection Fund has been established. This governing body has been set up to provide compensation for those whose employers have become insolvent or where there is insufficient assets in the pension scheme to cover the Pension Protection Funds stated level of compensation. The Pension Protection Fund is also responsible for fraud compensation.

In recent years many companies have chosen to close salary related pension schemes in order to adopt a “money purchase” scheme. The main reason for this change being companies no longer want the liability of operating a final salary pension scheme, as well as the high administration costs, paying employer contributions and absorbing fluctuations on the stock market.