Employers may make pension provision for their employees to boost the basic state pension. They must ensure as a minimum that employees can pay into a stakeholder pension scheme (normally a personal pension arrangement between the employee and the scheme provider) through the payroll system, although the employer is not currently obliged to make any contribution. This position will change when an employer reaches their ‘staging date’ for auto-enrolment (the earliest of which was 1 October 2012 and the latest will be 1 February 2018 depending on the employer’s size (with the largest employers first)).
Where the employer runs an occupational pension scheme, the trustees of the scheme will include current and former employees. As a body, the trustees will be responsible for ensuring that the trust’s assets are correctly managed, in the interests of the scheme’s beneficiaries.
Generally there are two different types of pension scheme:
- defined benefit (often called final salary or salary-related) schemes. In defined benefit schemes, the benefit is assessed by reference to the employee’s salary at the date of leaving the scheme or retiring, along with their years of pensionable service. The risk of the scheme’s investment performance lies with the employer.
- defined contribution (known as money purchase) scheme. In defined contribution schemes, the benefit is assessed by reference to the value of the pension fund at the date of retirement, with the employee and/or employer making contributions in to the fund in addition to the investment returns. The risk of the scheme’s investment performance lies with the employee.