About Us Consumers Advisers Employers Media

	About Scottish Life
	Pensions at work
	Why bother?
	A pension overview
	Communicating benefits
	FAQs
	Investment for employers
	Why Scottish Life?
	Trustee zone

You are not logged in.

• Log in
• Register

Employer  >  Pensions at work  >  A pension overview  >  A pension overview

A pension overview

Understanding pensions and the options available is, most probably, something you don't have time for. But you don't need to become a pensions expert - that's why we're here and also why you should have a financial adviser. We're happy to give you all the information you need and make it easy for you to understand, but we can't give you advice. If you feel you need advice but don't have an adviser, simply visit IFA Promotion for some contacts.

We thought it might be useful here to tell you just a little about the different kinds of pensions which you can offer to your employees. Hopefully it will help cut through some of the jargon surrounding employer-sponsored pensions.

• Group personal pensions (GPP)
  This is the most common kind of pension that employers set up right now. Although it's called a group plan, it's actually a collection of individual plans belonging to your employees. Employees are responsible for deciding how much they want to pay in and how they want their money to be invested. Your chief responsibility (apart from picking an appropriate provider) is to make sure that you deduct the right amount of money from each employee's salary and pay it over to us on time, along with any contributions that you're making (we provide lots of assistance to help you do this). You don't have any responsibility for the performance of the plan. Modern GPPs are generally low cost, very flexible, portable and easy to understand. It's worth noting that the economies of scale which come with a GPP often mean that your employees can get a better deal than if they struck out on their own.

Benefits	Drawbacks
Employees own their own plans rather than you being responsible	Less control for you over how employees invest their money
You decide how much you want to contribute	Can be seen by some employees as inferior alternative to a company scheme (see below)
You can still set qualifying membership criteria
Wide range of investment choices
Simple, flexible and portable plans
Low cost

• Stakeholder pensions (ShP)
  If you have more than 5 employees in your company, you must, as a minimum, offer your employees the chance to take out a stakeholder pension plan. If you don't, you may be liable for a fine of up to £50,000. Stakeholder pensions are very similar to GPPs in that they belong to the individual and are simple to understand, flexible and portable. However, one important addition is that they have a charge cap of 1.5% for the first 10 years. This means that we can't take more than 1.5% of the fund in charges each year - so if an employee's pension was worth £1,000 we could only take £15 in charges. However, this also means that the investment choice that your employees enjoy will be restricted, as some of the more active funds that we (and most other providers) offer carry an extra charge which will place them outside the 1.5% cap. It's worth noting that GPPs very often are charged at 1.5% per year or less, but do offer the extra investment flexibility if an employee is willing to pay the extra.

Benefits	Drawbacks
Employees own their own plans rather than you being responsible	Less control for you over how employees invest their money
You decide how much you want to contribute	Can be seen by some employees as inferior alternative to a company scheme (see below)
You can still set qualifying membership criteria	Charge cap means that investment choice is restricted
Wide range of investment choices
Simple, flexible and portable plans
Charges capped at 1.5% per year

• Occupational pensions
  There are two types of occupational pensions - defined contribution (DC) and defined benefit (DB). These are sometimes called a 'pot' or a 'promise'. With DB, your employees build up an entitlement or 'promise' to a pension for each year of service. Typically this might be 1/60th of their final salary each year. So an employee who has 20 years' service and a final salary of £30,000 would have 20/60ths of £30,000 per year as a pension, or £10,000. This income would be guaranteed and would rise each year. The key point with DB schemes is that they tend to carry a much higher cost and risk than other types of scheme. That's because you are responsible for ensuring that enough money is available to pay the pensions of all your retired members for as long as they live, plus any dependants' pensions that are part of the scheme.
  With DC schemes, your employees build up a 'pot' of money which they use to purchase an income at retirement. These schemes are, if you like, a step down in terms of risk and responsibility for you as an employer. However, under a piece of legislation known as the Pensions Act 1995, you do have a number of responsibilities to members of the scheme. Your financial adviser will be able to explain more about these to you.
  Both types of scheme can be contracted in or out of the State Second Pension (S2P). Again, your financial adviser can explain more about this. They are both run under a trust and offer greater member protection than GPPs or ShPs. The flip side of that is that protection for members generally equals risk for you and your business! The increasing weight of legislation on occupational schemes has meant that very few new schemes of this type are starting up. However, lots of employers who have existing arrangements of this type are keeping them in force, and looking to control costs by transferring the scheme to a different provider such as Scottish Life.

Benefits	Drawbacks
Greater member protection	Much higher risk for you, particularly with defined benefit
Greater control for you	Higher cost to you
Seen as the 'Rolls Royce' of pension arrangements by unions and workforces	Potentially less flexible

How Scottish Life can help

We offer the following group pension products under our flagship contract, Retirement Solutions:

• Group personal pensions
• Group stakeholder pensions
• DC occupational pensions - contracted in money purchase (CIMP) plans

We also offer a range of defined benefit options. We are highly experienced with pension scheme restructures, including moving from one type of arrangement to another - for example where a company may wish to switch from defined benefit to GPP to control cost and risk.

Use the links below to find out more information on our Retirement Solutions range of DC pensions.

Retirement Solutions guide for employers - An overview of our group personal pension and group stakeholder pension.

Company pension guide for employers - An overview of our DC occupational pension.