An employer currently has no legal obligation to provide a pension scheme. However, if the company has more than 5 employees, it must designate a stakeholder pension scheme, that is, one run outside the company, typically by one of the large insurers.

The employer has no obligation to contribute to the scheme, but simply to facilitate employees making their own contributions.

There are two main types of company pension schemes.

The ‘final salary scheme’, also known as a ‘defined benefit scheme’, guarantees you a percentage of your final salary when you retire. Typically you would receive one-sixtieth of your final salary for every year of service to the company. By that measure, if you worked for your company for thirty years, you would receive a pension equal to half of your final salary in your retirement. This gives you a degree of guaranteed purchasing power, regardless of economic conditions and inflation. In final salary schemes, the company must stump up more money if the underlying investments are under-performing. As a result, companies are becoming more reluctant to set up or expand such schemes.

In a ‘group personal pension’ or ‘defined contribution scheme’, you define how much you contribute as you work, but there is no guarantee of the return you will receive at the end. That return depends on the performance of the funds where your pension has been invested.

If you as an employee change job, you can take your pension with you. A “Transfer Value Analysis” can be requested from a qualified tax expert, which will compare the value of your accrued benefits if left where they are, compared with their value if you moved them to your new company, or to another scheme. These are not exact calculations, as they must make certain assumptions, but can be helpful where, for instance, a person is considering moving his pension from a company scheme to a personal pension scheme.

Other ingredients in the employee benefits package might include income protection insurance, ‘death in service’ life insurance, and private medical health insurance.

Where income protection insurance is included, the cover might typically provide the employee with 50% of his salary in the event of incapacity, guaranteed until he reaches retirement age.

The  ’death in service’ life cover would pay out a lump sum, typically equivalent to  2 to 3 times the employee’s annual salary, in the event of his death. With group insurances you often have a free cover limit, which means that, up to a certain limit of cover, no medical evidence is asked for – the insurer calculates that the health of a group averages out better than the health of one individual. This is known as the ‘non-selection limit’ in the scheme. To qualify for the non-selection limit, you normally must have been at work for the previous two months.

Is the pension scheme in your company a ‘final salary scheme’ or a ‘group personal pension scheme’?

The first gives you a pension equal to a percentage of your final salary and usually relates to your length of service with the company. The second invests your pension savings in funds, but gives no guarantee of the pension you will receive at the end.

What percentage of my salary will my employer contribute and what will I contribute?

While there is no legal obligation on an employer to contribute to your salary, most do. A typical package might involve your employer paying in the equivalent of 3% of your salary, while you pay twice that.

Does the company provide any life cover and if so, how much?

A group life policy will pay a multiple of your annual salary in the event of your ‘death in service’. Depending on the scheme, these will typically pay out two to four times your annual salary.

What other benefits are included in my package?

These might include private medical insurance, income protection cover, in addition to the aforementioned ‘death in service’ benefit. With this type of group insurance, up to a certain limit of cover, often no medical evidence is required. The insurer calculates that the health of a group averages out better than the health of one individual. To qualify for this advantage in a group scheme, you normally must have demonstrated good health by being at work for the previous two months.