What is a Scheme Pension?

A type of Secured Pension, a Scheme Pension is provided by an occupational pension scheme or a pension paid by an insurance company selected by the scheme administrator.

 

What are the Scheme Pension options?

At the outset of taking benefits from any scheme pension, the cash free tax component must be taken.

After that, the remainder of the benefits can be taken depending on whether it is a Defined benefit or Money purchase scheme, as follows:

  • Defined Benefit scheme pension: This is the only option available. The rules of the scheme will determine the remainder of benefits payable in terms of guarantees, spouse’s and dependants’ pension (Survivors’ pension) and escalation.
  • Money Purchase (Defined Contribution) scheme pension options include: Frequency of income, pension escalation, guarantees, capital protection, and survivor pension. However, a Scheme pension can only be considered for members of a money purchase arrangement after the option of selecting a Lifetime annuity has been rejected.

 

Why should I consider a Scheme Pension or Lifetime Annuity?

If you are a member of a Defined benefit scheme, then there are of course only a few considerations to make.

However, the advantages common to Scheme pensions provided by both Defined benefit and Money purchase arrangements are said to be similar to a Lifetime Annuity which are as follows:-

  • Guaranteed level of income for life
  • Guaranteed Survivor’s pension
  • No inheritance tax implications

Nevertheless the disadvantages of a Scheme pension provided by a Defined benefit scheme are that none of the above benefits can be changed or varied. Additionally the common disadvantages of all Scheme pensions is that once benefits are taken the member will not be able to profit from the underlying funds investment growth and lump sum death benefits are at best limited and at worst not available.

Restricted to members of Scheme pensions provided by Money purchase arrangements there will be reasons specific to an individual’s personal circumstances to which options to consider are more appropriate than others, and of course whether a lifetime annuity should be taken instead.

These include issues relating to a members death benefit requirements, access to tax free cash and income in the short term balanced against the income requirements in the longer term that also need to be considered.

 

How can I take a Scheme Pension or Lifetime Annuity?

The first and most important step after you have decided you may want to start taking benefits from a Scheme Pension or select Scheme Pension options or start a Lifetime annuity that provides the desired retirement income is to have a discussion with us to provide you with independent financial advice.

We then agree what the most suitable type of Scheme Pension option or Lifetime Annuity is for your particular circumstances at the acceptable level of risk you are prepared to take to match your needs as part of the pension planning process.

We then make an application on your behalf to commence pension benefits based on how much income required the size and composition of the fund and the benefits available from the scheme providing the retirement benefits including all other existing pension schemes or deferred schemes, and your personal tax situation.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the articles associated with Pensions and Retirement from the Financial Services Authority website at http://www.moneymadeclear.fsa.gov.uk/products/pensions/pensions.html and

Also you can download the free booklet ‘Just the facts about pensions’ from the same website at

http://www.moneymadeclear.fsa.gov.uk/pdfs/pensions.pdf

Additionally you can download the booklet ‘Just the facts about retiring soon’ at http://www.moneymadeclear.fsa.gov.uk/pdfs/retiring_soon.pdf

and also the booklet ‘Just the facts about your retirement options’ at

http://www.moneymadeclear.fsa.gov.uk/pdfs/retirement_options.pdf