Retirement:
Group personal pension scheme

This is a collection of individual personal pension plans linked together, usually for employees of the same company. These will all be with the same pension provider.

Normally the employer will deduct your contributions from your net salary and pay them across to the pension provider on your behalf.

A variation of this is the Group stakeholder Scheme where the charges on the pension are limited by law but usually the investment choice is very limited also.

It is a form of money purchase pension but has greater flexibility than a standard employer�s money purchase scheme. As it is a personal pension you can take it with you when you change jobs but unlike a personal pension you arrange yourself it is possible that your employer will also contribute to the scheme.

Contributions

The total employee and employer contributions cannot exceed the annual allowance. This is currently �215,000, rising to �255,000 in the 2010-2011 tax year. If contributions exceed this level, a tax charge of 40% is placed on the excess. The exception to this is in the same year that the benefits are taken, when there is no limit to the level of contribution.

However, to obtain corporation tax relief the contributions must be demonstrated to be a wholly and exclusive business expense to the local Inspector of Taxes.

To obtain tax relief on the personal payments, the gross contributions must be no more than the greater of �3,600 or 100% of earnings, and under the annual allowance level.

The pension benefits available

The benefits paid on retirement depend on the amount of contributions that have been paid and the investment return achieved. Generally the fund built up at retirement can be taken as a tax-free pension commencement lump sum of not more than 25% of the fund, with the balance being used to provide an income.

Example

Mr B has worked for PQR Ltd for 35 years and was a member of their group personal pension scheme. At retirement Mr B had a pension fund of �200,000 which gave him the following pension benefits:

A pension lump sum of 25% of the pension fund = �50,000

An annual pension bought with the remaining fund (�150,000) = �12,000

The majority of people buy an annuity with the balance of the fund. This gives them an annual pension an can include options such as an increasing pension, a dependant�s pension or a guaranteed period of payment.

Related literature:

What is an annuity?

An alternative to buying an annuity is unsecured income pension fund withdrawal. Instead of purchasing an annuity you are able to draw an income from the pension fund directly. There are limits for the amount you can take each year based on the Government Actuaries Department (GAD). This government department calculates the maximum amount that may be drawn as income. The minimum income that may be taken is nil.

Related literature:

Pension fund withdrawal

What happens if I leave the scheme?

Unlike other pension schemes offered by your employer, you can take your personal pension with you when you change jobs. You have the following options:

to leave your pension fund where it is to continue to benefit from investment growth (but without further contributions) until your reach your normal retirement age, or

to transfer the value of your pension fund to another pension scheme.

to continue contributing to the plan

It is important to take professional advice as to the best option for you. If you are no longer contributing to a pension fund with a high level of management charges, these charges can seriously erode your ultimate pension benefits particularly if the scheme has poor investment growth. If you wish to transfer your pension fund to another pension scheme your original pension fund holder may impose substantial penalties reducing the fund available to transfer.

What happens when I die?

As with other personal pensions you will receive the following death benefits:

If you die before you start receiving your pension
the value of your fund will be paid to your estate or to an individual you have previously nominated to receive the fund on your death.

If you die whilst receiving your pension as an annuity the death benefits will be those selected by you when you purchased your annuity, typically a pension for your spouse or other dependants together with any amounts outstanding in respect of a guaranteed period.

If you die whilst receiving your pension as unsecured income you will generally have had the option of nominating that the fund is to provide benefits for your spouse or other dependants. They will have the option of: