Defined Contribution Schemes
- These schemes are often collectively called defined contribution schemes.
- No guaranteed benefits. Funds build up from the contributions and the benefits provided depend on the size of the fund at the time.
- If the member chooses to purchase a lifetime annuity, the actual level of income will depend on the annuity rates when benefits are taken
- Part of the fund can be taken as a tax free lump sum which is usually 25% of the pension’s worth
- Can be occupational schemes (provided by employer) or an individual arrangements e.g. a personal pension, stakeholder pensions, executive pensions, small self-administered schemes (SSAS) or a self invested personal pension (SIPP)
- Some money purchase schemes are ‘hybrid’ schemes, e.g. a targeted money purchase scheme. This type of scheme is funded to provide a specific amount of benefit at retirement, typically a proportion of final salary.
Question - Use Your Note Taker To Jot Down Ideas / Calculations
Julia is about to retire and take benefits from her company’s group personal pension plan. Which of the following factors will be used to determine the level of pension she receives in retirement?
a) The size of her fund.
b) Her final pensionable remuneration.
c) Her pensionable service with the company.
d) The scheme’s accrual rate.
A)
A group personal pension plan is a money purchase arrangement and the size of her fund will determine (to some extent) the amount of income she receives in retirement. If she chooses to purchase a lifetime annuity, then current annuity rates will also have an impact