Here we look at occupational schemes as work related benefits. Most employed people will have the opportunity to join an employer sponsored occupational pension scheme at some point or another during their working lives. Indeed the introduction of automatic enrolment from 1 October 2012 means that the majority of employees will be automatically enrolled into a workplace pension. These schemes provide benefits on retirement and may also provide benefits for occurrences like death in service or ill health.
Employers are responsible for choosing the level of benefit and the format of the scheme and then offering it to their employees but if the scheme is to be used for automatic enrolment, there is a prescribed level of contributions that have to be paid to the scheme, in the case of a defined contribution (DC) scheme, or a prescribed level of benefit, where the scheme is a defined benefit (DB) scheme.
There is a choice of scheme structures and schemes that can be offered by individual employers, or by a group of similar employers, these are known as centralised schemes. Public sector schemes are those set up by the Government to cover public sector employees such as civil servants, teachers and the police. These schemes may be statutory (i.e. set up under an Act of Parliament) and can either be funded, as in the case of the Local Authority Pension Scheme, or unfunded and paid for out of general taxation revenue.
This section relates to Workplace Pension Schemes and can be found in the relevant pages of the Retirement Provision Certificate Study Manual 2022.
2.Think about it
James Roberts has worked for Makepiece Ltd for 30 years. He is 65 in 3 months time, which is the normal retirement age within the company.
He has approached you to talk about the implications of taking late retirement because he is hoping to carry on working until his 68th birthday.
He explains that he has been a member of Makepiece's final salary occupational scheme for 25 years, then asks what the implications of late retirement might be on his retirement benefits.
What options might Julius have with a pension of this structure?
Write your comments down as part of your revision structure/practice.
3. Fact Finding
CPI and RPI
In occupational schemes early leavers are often entitled by law to benefits at retirement. With DB schemes these benefits relate back to the length of their service and their final salary at leaving. Benefits are now often revalued with reference to the Consumer Prices Index (CPI).
STEP 1 - To find out more about the CPI and RPI visit the Government's statistics website using this logo link:
STEP 2 - Click on 'Economy' at the top of the page to visit a summary table of economic factors
STEP 3 - Follow the link ‘Inflation and price indices’ and then follow the link on the left hand side of the page to the 'On this page' section. Try to answer the following questions:
You can now check your knowledge by a short test. Once completed then check your answers against those given.