INTRODUCTION TO PENSIONS
Pension schemes fall into several broad categories, and you may have more than one type.
Here is a summary of the most common types of pension schemes:
A defined benefit pension plan (also known as Final Salary) is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum (or combination thereof) on...
The most common type of formula used is based on the employee’s terminal earnings (final salary). Under this formula, benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career.
In the private sector, defined benefit plans are often funded exclusively by employer contributions. For very small companies with one owner and a handful of younger employees, the business owner generally receives a high percentage of the benefits. In the public sector, defined benefit plans usually require employee contributions.
Over time, these plans may face deficits or surpluses between the money currently in their plans and the total amount of their pension obligations. Contributions may be made by the employee, the employer, or both. In many defined benefit plans the employer bears the investment risk and can benefit from surpluses.
Many schemes continue to run large deficits, potentially unable to meet future obligations. If you have a defined benefit / final salary scheme, and are concerned about any deficit, then in certain circumstances transferring to a new pension arrangement could be appropriate. Many Avantis Wealth Clients begin their investment journey through a complimentary pension review, and is a key benefit of membership to the Astute Investor Club. For details of the club and how to join click here.
A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and...
While Defined Contribution plans are sometimes referred to as pensions, they are not. The word “pension” is defined as “a fixed amount, other than wages, paid at regular intervals to a person or to the person’s surviving dependents in consideration of past services”. In contrast, a Defined Contribution retirement plan is an arrangement where an employer, during the time a person is employed, puts money in a registered retirement account on the employee’s behalf. In general, a defined contribution plan provides much less security for the employee, and much less obligation for the employer, than a defined benefit pension plan. Consequently, over time, many employers, especially in the private sector, have discontinued offering defined benefit plans to their employees and have switched to offering them defined contribution plans instead. Many Avantis Wealth Clients begin their investment journey through a complimentary pension review, and is a key benefit of membership to the Astute Investor Club. For details of the club and how to join click here.
A Self-Invested Personal Pension (SIPP) is the name given to the type of UK government-approved personal pension scheme, which allows individuals to make their own investment decisions…
SIPPs are a type of Personal Pension Plan. Another subset of this type of pension is the Stakeholder Pension Plan. SIPPs, in common with personal pension schemes, are tax “wrappers”, allowing tax rebates on contributions in exchange for limits on accessibility. The HMRC rules allow for a greater range of investments to be held than Personal Pension Plans, notably equities and property. Rules for contributions, benefit withdrawal etc. are the same as for other personal pension schemes.
A select number of SIPP providers accept F.R.E.S.H. investments from Avantis Wealth. For more information, please contact our investment broker team on 01273 447299 or email firstname.lastname@example.org.
Small Self-Administered Scheme (SSAS) is a type of UK Occupational Pension Scheme. Schemes are trust-based and established individually, usually by directors of limited companies for specified…
F.R.E.S.H. investments from Avantis Wealth, can be held in SSAS. For more information, please contact our investment broker team on 01273 447299 or email email@example.com.