Occupational pension schemes are set up by employers to provide pensions and sometimes life assurance benefits for employees, for example, a tax-free lump sum payable if they die before retirement to their dependant(s).
There are two main types of occupational pension scheme:
- Final salary, in which the pension is a proportion of your salary at or near retirement date and is linked to the number of years you have worked for the particular employer; or
- Money purchase, in which the pension is based on the total value on retirement of the money paid into the scheme and on how the investment has performed.
As an employee you have the right to leave, or decline to join, an occupational pension scheme. If you are thinking about leaving an occupational pension scheme, you should consider the implications of this very carefully, because an occupational pension scheme will usually be far more advantageous than a personal pension scheme.
In addition, an occupational pension scheme may be reluctant to allow you to return to the scheme after you have left to take out a personal pension. If you decide to leave, or decline to join, an occupational pension scheme, you will then have to contribute towards additional pension or a personal pension.
If you are thinking about leaving a personal pension scheme, you should get independent financial advice first.
The occupational pension scheme may be contracted out of additional pension, which means you will not pay contributions into additional pension and will only be entitled to a basic state retirement pension plus an occupational pension on retirement.
If the scheme is not contracted out of additional pension you will continue to pay into additional pension and will be eligible for the basic retirement pension plus additional pension plus an occupational pension on retirement.