Occupational pensions

Wednesday, 22 November 2006 03:32

Occupational pensions are a way of saving money for your retirement that is linked to a job.

All UK employers are required to offer a nominated pension scheme to their staff, although they are not currently required to pay into this on their staff's behalf.

If a company does decide to make contributions on behalf of their employees, these tend to be in the one of two forms - either defined contribution or defined benefit.

Under a defined contribution scheme employers contribute a percentage of their employee's salary into a pension fund on their behalf (generally matching the employees contribution up to a fixed percentage of their annual salary).

Under a defined benefit - or final salary - scheme, the company promises to pay a certain percentage of the employee's final salary to them in their retirement for each year that they work at the firm. i.e. if they work for 20 years at the same company, with the firm promising three per cent of their final salary a year as an income, they will receive 60 per cent of their final salary a year in retirement.

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