Types of pension arrangements for employees
Types of pension arrangements for employees

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Types of pension arrangements for employees
  • Ways of accruing pension benefits
  • Occupational pension schemes
  • Personal pension schemes
  • Employer-financed retirement benefit schemes (EFRBS)
  • Master trusts
  • The state pension

Ways of accruing pension benefits

There are a variety of possible pension arrangements for employees. The main options include:

  1. occupational pension schemes

  2. personal pension schemes

  3. employer-financed retirement benefits schemes (EFRBS)

  4. master trusts (including the National Employment Savings Trust (NEST) since October 2012)

  5. the state pension

Employees may be members of and contribute to more than one pension arrangement at the same time eg the employer's occupational pension scheme and the employee's own personal pension scheme.

Occupational pension schemes

Occupational pension schemes can be set up as:

  1. defined benefit (DB) schemes

  2. defined contribution (DC) schemes

  3. hybrid schemes

  4. mixed benefit schemes

  5. cash balance schemes

  6. small self-administered schemes (SSASs)

  7. sectionalised pension schemes

Occupational pension schemes (whether DB or DC) may also provide a facility for employees to top-up their benefits by paying additional voluntary contribution (AVCs) to the scheme (ie in addition to the ordinary contributions they are required to make under the scheme rules).

The two main types of defined benefit schemes are:

  1. final salary

  2. career average revalued earnings (CARE)

Defined benefit—final salary schemes

In defined benefit schemes, employees' benefits are defined in the scheme rules. In a final salary scheme, benefits are calculated by reference to a proportion of their final pensionable salary for each year of pensionable service ie employees accrue a proportion of their final pensionable salary in pension for each