Pension plans: Choosing your company pension scheme

My company pension scheme explained. Like many people you may only have a vague awareness of the status of your current company pension. You may know what you pay in each month, and that your employer is probably making a similar contribution. But do you know your plan’s specifics?

Understanding what your company contributes to your pension scheme and how this relates to your retirement is a crucial step in taking hold of your finances and planning for your future, which is so important in today’s economic climate.

The different types of company pension scheme contributions

Your employer is required to offer you the chance to join an occupational or workplace pension scheme. This rule also usually applies if you are a part-time worker.  From the 1st October 2012, a change to pension laws means that your company is required to automatically enroll you in their pension scheme, if you are over the age of 22, and make contributions, although you do have the option to opt out and back in if you wish. The smaller the company, the longer this compulsory enrolment will take to come into effect.

Your company’s contributions to your pension plan will depend on which type of scheme they have chosen to operate, although they cannot opt out of making payments:

• Defined benefit schemes. Company input will vary depending on your salary and length of service, so for example if you get a raise, your company pension scheme contribution will also increase.
• Defined contribution schemes. You and your employer still make contributions to the company pension plan, but the money is then invested with the hope of a greater return if your investments have performed well.

With the new Pensions Act coming into force from 2012, an employer must now contribute a percentage of their employees' qualifying salaries. This percentage will be phased in over coming years, up to 3%.

At any time you can request a pension scheme forecast from your company’s human resource department. This will detail how much you have currently paid in, how much your employer’s pension contributions are, and what amount you can expect to draw from the allowance when you retire.

What happens when you leave the company?

One of the most frequently asked questions about company pension schemes is what will happen to the money you have paid in if you leave the company before your specified retirement age. Depending on the regulations of your plan, you can either request a transfer of funds into your new occupational pension or keep it on hold until you hit retirement age and are allowed to withdraw from it (whilst joining a new workplace pension plan with your new company).