Choose the right pension scheme

Choosing a group personal pension

A group personal pension (GPP) scheme is a collection of individual personal pensions grouped together by the pension provider.

Personal pensions usually offer a choice of funds in which to invest. The two basic options are:

With-profit - contributions are invested in equities and gilt-edged securities. Investments grow as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smooths returns so that some gain in a good year is held back to boost performance in a bad year.

Unit-linked - these funds cover a wide range of investments. Contributions buy units in the chosen funds, which then increase or decrease according to the performance of their investments. The value of these investments reflect market performance more accurately than with-profits funds.

Pension providers pass on administration costs through pension plan charges, which are deducted from the employee's fund. Costs can vary considerably and there can be penalties for switching pension provider, so research these carefully before taking a decision. Plans that let you pay lump sums and change your premium give you the greatest flexibility. It may be helpful to get professional advice.

Where an employer arranges for a pension provider to set up a GPP, employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension. Employers who offer all employees access to a GPP are exempt from the requirement to designate a stakeholder pension scheme providing the employer contributes an amount equal to at least 3 per cent of employees' earnings and the GPP has no exit penalties.

Personal pension plans may be a good option for employees who change jobs frequently, as they can take their personal plans with them. However, any special terms the employer has arranged for employees, such as lower costs or life insurance, will probably stop when the employee ceases to work for that employer. Also, personal pension schemes sometimes have high transfer penalties.

Subjects covered in this guide

• Introduction
• Benefits of having a workplace-based pension scheme
• Choosing an occupational pension scheme
• Choosing a group personal pension
• Choosing a stakeholder pension scheme
• Approved pension schemes for directors and owners
• Unapproved pension schemes for directors and owners
• Comparison of pension schemes
• Organisations that advise on pensions schemes
• Considerations when choosing a pension scheme
• Here's how I selected the best company pension scheme for my business

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