motivation in practice - pensions
Pensions are a very complicated area of employee pay - but an important one: both for the employee and the employer. In your business studies examinations you are not required to have a detailed understanding of pension provision. However, it is worth having an outline knowledge of the different types of pension scheme.
Types of pension scheme
The main types of pension arrangements currently available are a:
• Flat rate pension (often referred to as an "old
age pension")
• State earnings related pension supplement
• Occupational pension
• Personal pension
• Stakeholder pension
State pensions
These are financed by contributions from employers and employees with a subsidy from the government via general taxation.
Occupational pensions
Occupational pension schemes are run by employers and have the following components:
• A pension based on either final salary (ie related to average earnings over the last two, three or five years) or on money purchase (ie based on flat percentage contributions)
• A lump sum benefit on retirement
• Benefits for dependants
• Benefits for early leavers.
Some schemes are "non-contributory" which means that
the employer meets the full cost. However, in most cases the employer will
require the employee to make a monthly contribution to the pension scheme. Employees
can also make "additional voluntary contributions" if they want to increase
the amount they invest in their pension.
Personal pensions
Employees may decide to take out a personal pension instead of joining their company’s scheme and if so they will receive a contribution, linked to earnings, from the Government to their personal pension scheme. In addition they can transfer from one personal pension to another or into an occupational scheme.
Stakeholder pensions
Introduced in 2001, these are a form of personal pension available to almost everyone – employees, non-earners, people already in company schemes and the self-employed.
Tax relief is available on contributions. A business that employs five or more people who earn over the lower earnings limit is obliged to offer employees access to a stakeholder pension scheme if they do not already offer pension provision.
Industrial relations implications of pensions
Many companies recognise the need to negotiate or consult about pensions as part of the overall pay package, including, more specifically:
• Conditions of entitlement
• Size of pensions
• Attitude towards those taking personal pensions
• Size of employer contribution
• Use of pension fund surpluses
• The involvement, if any, of employees as trustees
Teacher Subject Newsletters | Teacher Forums | Online Store | tutor2u News tutor2u on Twitter: Subject Blogs: About tutor2u | Copyright | Privacy | Terms of Use | Contact tutor2u Our Development Partners: |
