Irrespective of whether you are an employer or an employee, there are a plethora of benefits of an occupational scheme or an occupational pension scheme.
An occupational pension scheme usually involves not just the employee but also the employer’s contribution. In this type of pension plan, the employer is committed to contribute to the pension of an employee within the DC (defined contribution) scheme.
There is no doubt that occupational pension schemes are beneficial for employees. As well as a tax efficient way of saving for retirement these schemes also allow the pension to grow quicker, since the employer and employee will both be contributing to it.
There are many benefits for employers who provide an occupational pension scheme to its employees. It helps in the retention of employees and reduces the employee turnover. Also, from a HR point of view, occupational pension schemes are a great incentive for a new employee, who is considering joining your company. If a company does not offer such a scheme, its introduction can act as a great motivational tool for existing employees, thereby increasing their productivity, as well as loyalty towards the employee.
Therefore, as an employer, offering a group pension plan is not just tax efficient but also a feasible means of attracting new employees, as well as retaining the existing ones.
Potential employees should enquire if the company they are about to join offers any occupational pension schemes. While there are a plethora of other options if an employer does not offer one, it is worthwhile to consider choosing a company with such schemes in place, for long term as well as tax benefits.
Occupational schemes meant to provide retirement benefits to employees is regulated by the pension regulator under UK law and these fall into three main categories:
1. Defined Benefit Schemes
This is a common occupational pension scheme in which the employer promises the employee a pre-set level of benefit, at the time of death or retirement. In this scenario, the employer’s contribution is determined from time to time, to ensure the cost of promised benefits is covered. Most of such schemes provide a pension based on the earning of employee when he is nearing retirement.
2. Defined Contribution Schemes
This is the most common form of pension scheme and is also known as money purchase scheme. In this scheme, the benefits payable to the employee are calculated as per the contribution paid into the scheme. At the time of retirement, the employee can choose to secure their income by choosing a drawdown pension plan, in which a percentage of pension is received monthly. Alternatively, they can choose to withdraw the pension as a lump sum amount at the age of retirement.
3. Hybrid Schemes
This is basically a mix of defined benefit and defined contribution schemes. These schemes usually have a different clause which allows the members to reap benefits on either a defined benefit or a money purchase plan. However, in some instances, the members can use both type of benefits at the same time.
The type of occupational scheme, and whether to supply one or not, is at the sole discretion of the employer.
Tom Street qualified as a solicitor in 2003 and has over 20 years experience in employment and litigation law. He studied law at the University of Manchester before undertaking the legal practice course at the College of Law in Guildford, going on to complete his legal training at a firm in Chancery Lane, London. Once fully qualified, he moved to a niche litigation practice in the City of London.
In 2010, Tom set up his own legal practice, Tom Street & Co Solicitors and as part of this, in accordance with his strongly held objective to provide everyone with an easy pathway to justice he established the online portals Do I Have A Case? and Tribunal Claim. These websites are trading names of Tom Street & Co Solicitors.