Scheme members should ensure they get as much information about pensions as possible.
Here are some of the most frequently asked questions about pension schemes:
1. What is a final salary scheme?
One that pays an annual income in retirement based on employee salary in the final years of employment and length of service.
When you contribute to a final salary scheme you and the company usually make contributions into a fund with other members.
Investments are then made by investment managers appointed by the Trustees of the Fund, or by agents, in the case of property, after professional advice has been taken.
2. How does money purchase scheme differ from a final salary scheme?
In a money purchase scheme, an individual pot of money is saved on your behalf.
On retirement, the money can be used to buy an annuity, usually from an insurance company, that pays an income until you die.
Since April 2015 it is also possible for members with sufficient funds to go into drawdown where the bulk of the pension pot remains invested so that it can increase in value - or decrease according to the performance of the investments, charges and commission - and amounts can be drawn down as income at intervals.
It is also possible to take the whole of the pension pot as a lump sum but this may result in a member facing a very high tax bill - depending on the amount involved.
What you collect on retirement depends on how much you and your employer contribute, the investment performance of your savings minus the costs of running the fund.
3. Can I get a forecast of my state pension?
Yes – in order to fully plan for the future, many people might find it useful to to get a forecast of what they are likely to get as their state pension. The amount of state pension you are entitled to is based on the contributions you have made during your working life.
Women born after 1950 are being affected by a 10 year phasing in period, which started in 2010, aimed at bringing in a common state retirement age for everyone.
The contribution requirement changed with effect from April 2010 so that everyone will need 30 years of contributions to qualify for the full state pension.
Everyone approaching retirement can obtain a retirement pension forecast by completing form BR19. They can do so by contacting the Retirement Pension Forecasting Team, The Pension Service, Whitley Road, Newcastle Upon Tyne, NE98 1BA.
You can also telephone 0845 3000168 and fill in the form on the telephone, or if you have a speech or hearing problem there is a textphone service on 0845 3000169.
Alternatively you can download the form and get more information at www.thepensionservice.gov.uk
Whether or not you have obtained a pension forecast you should contact the Pension Service about 4 months before you reach state pension age to confirm your address and contact details.
It is possible to defer taking you state pension for as long as you wish up to aged 70 and the government has introduced an incentive to encourage this. If you defer you can choose between either an additional pension of around 10 per cent for each full year you do not claim, or, a one off taxable lump sum equal to the pension you have not received plus interest of 2 per cent above base rate.
You receive the lump sum when you start taking your pension. For more information go to: www.fsa.gov.uk or www.thepensionservice.gov.uk
You can also get information from the Pensions Advisory Service on 0300 123 1047.
4. What is an actuarial valuation?
The actuarial valuation is an examination of the ability of a pension scheme to meet its liabilities at a particular point in time (”the valuation date”).
It does this by comparing the assets which the scheme holds with its liabilities earned up to the valuation date.
The scheme liabilities are the pensions which are being paid to retired members and the promise to pay benefits to members and their dependants in the future.
Essentially, the valuation involves estimating the ongoing scheme income and benefits payable, based on the information available at the date of valuation and a number of assumptions as to the future progress of benefit expenditure and scheme income.
The valuation is also used to help agree an appropriate rate of contribution between the members and the Company.
This rate will reflect the cost of benefits earned after the valuation date, as well as addressing any funding imbalance disclosed by the valuation.
Members receive an annual summary funding statement, which summarises the valuation results and the resulting plan of action.