Pension Schemes Explained

Introduction

What are you up to after work? Your pension might be high on your priority list, or it might be the last thing on your mind — but whatever you’re up to, saving for your retirement has never been more important.

Even if retirement seems a long way off, you need to start planning for it now in order to ensure you will have an income that matches the lifestyle you are anticipating.

And what better way to plan and save for retirement than by joining the pension scheme your employer offers?

This booklet, along with the other elements of your Welcome Pack, explains in more detail how your pension scheme works and how you can get the most out of it as a member. We recommend that you read it carefully and keep it in a safe place for future reference.

Please note that your pension scheme is governed by a formal Trust Deed and Rules. Whilst every effort has been made to ensure that the information in this booklet accurately reflects that Trust Deed and Rules, if there is any difference between the two, the Trust Deed and Rules will apply.

Whilst the intention is to continue your pension scheme indefinitely, your employer reserves the right to amend or discontinue it at any time. If the scheme is discontinued, your account will be used to provide benefits for you or your dependants in accordance with the Trust Deed and Rules. The scheme is registered for tax purposes with Her Majesty’s Revenue and Customs (HMRC).

If, after reading this member booklet, you still have questions regarding the scheme or the benefits to which you are entitled as a member, you can contact your scheme administrator.

Now, it’s time to start planning for your retirement…

What is a pension scheme?

Put simply, a pension scheme is a means of making provision in advance for your income in retirement.

Most pension schemes involve regular contributions from the scheme member and their employer to fund their retirement income.

Your pension scheme is an occupational pension scheme set up under trust. This means that the savings you build up in the scheme are held entirely separate from the assets of your employer, and must be used to provide benefits for you and anyone financially dependent on you.

How does a pension scheme work?

Your pension scheme is a defined contribution scheme.

In a defined contribution scheme, any contributions you make (and/or any contributions your employer makes on your behalf) are invested in your individual pension account. Your scheme gives you a choice of funds to invest your account in, covering several different types of investments.

Over the course of your working life, the value of your savings will change as you contribute more and as the investments you have selected attract returns – hopefully positive ones!

When the time comes for you to retire, you can withdraw the value of your fund in full, take partial withdrawals, draw a regular income from your fund or purchase an annuity – a series of regular payments for the rest of your life. The more money you have been able to build up, the larger your income in retirement. You will also have the option to take some of your savings as a tax-free cash lump sum at retirement – subject to limits imposed by Her Majesty’s Revenue and Customs.

The principle really is very simple, as the flowchart below shows:

You should note that, except in cases of ill health, the money you save in the scheme can only be used to provide specific benefits from age 55.