When will I know when it’s time for me to set up my pension scheme?
As the largest firms are being dealt with first, there’s no need to panic right now. The Pensions Regulator has set up a series of “staging dates” and if you visit their website your will be able to find out the date when your business is due to be “staged”: http://www.tpr.gov.uk/staging – you’ll need to have the number of employees you have and your PAYE reference to hand to use the service.
In any event The Pensions Regulator will be contacting all businesses 6 to 12 months before their staging date.
What type of pension schemes are there?
There are 3 main types of work-based pension scheme:
- Defined Benefit (also known as DB, final salary or salary-related) – benefits are calculated based on how much a member earns and how long they are an employed member of the pension scheme.
- Defined Contribution (also known as DC or money purchase) – benefits are based on how much the member and employer pay into the scheme, and also on the performance of the investments made with that money. The income the member gets at retirement will depend on the amount of money in their fund, the age at which they retire and also the cost of buying a pension (the annuity rate) at the time.
- Hybrid – a mixture of DB and DC.
Who runs the pension scheme?
Pension schemes can be trust-based or contract-based, or a mixture of the two.
In a trust-based scheme (also known as an occupational scheme) a board of trustees is set up to run the scheme. This can be either a DB or a DC scheme. Trustees are accountable for making decisions about the way the scheme is run, although they may delegate some of the everyday tasks to a third party.
In a contract-based scheme (also known as a group personal pension) an employer appoints a pension provider, often an insurance company, to run the scheme. Employees take out a contract (also known as a policy) with the provider. In these schemes the provider makes the decisions about the way the scheme is run. Contract-based schemes are usually DC.
The choice of which scheme to offer is yours.
For most small businesses, such as pubs, providing a contract based scheme will be the preferred option as you hand the day to day running etc over to a pensions company and all you have to do is ensure that your contributions are made in full when due.
You will find a bewildering set of acronyms and terminology you may not be familiar with as you delve into the world of pensions, hopefully the following section will help explain some of them.
AVC – Additional Voluntary Contributions – extra payments an employee (not you) make to increase their pension pot.
Annuity – a financial product that uses a pension scheme member’s pension fund to provide an ongoing income when they retire.
Occupational Pension Scheme – is one that is set up by employers with trustees.
OMO – Open Market Option – this is the right that a member of a Defined Contribution scheme has to shop around when they retire to choose which pension company they buy their annuity from.
NEST– National Employment Savings Trust – is a simple and low-cost UK pension scheme designed to give its members an easy way of building up their retirement pot. It also makes it easy for employers to meet their workplace pension duties. Click here for more information about NEST.
Pension Provider – the organisation, which administers and runs a pension scheme – in most cases these are insurance companies.
Personal Pension – this is the contract between someone on a Defined Contribution scheme has with a pension provider.
Stakeholder Pension – this is a type of personal pension where the maximum charges are limited by the law.
Top Tip – don’t try and do this yourself, it’s fraught with complications and potential danger from liabilities you may not understand or consider – talk to your accountant or (if you have one already) pensions advisor before you do anything. Don’t be tempted to offer advice on pensions to your staff let the professionals do it!
Finally – have your sorted your own pension out yet?
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