Nov 3, 2010

Protection Benefits & Leaving Service | PENSION SCHEME DESIGN

Protection Benefits
Add a note hereThe main protection benefits in final salary schemes normally include:
§  Add a note herepensions to partners and/or dependent children on death in service or following retirement;
§  Add a note herea lump sum (often four times salary) on death in service;
§  Add a note herea pension on premature retirement due to ill health.
Add a note hereIn a defined contribution scheme, the benefits available are similar, but may be provided differently, for example:
§  Add a note herelump sum benefit on death in service of up to four times salary;
§  Add a note heredependant's pension on death in service purchased with accumulated fund and/or provided through insurance policy;
§  Add a note herethe benefits (if any) on death after retirement are selected by the individual when an annuity is purchased;
§  Add a note hereill-health benefits are typically provided by means of a 'permanent heath insurance' policy, which pays an income of 50–75 per cent of salary for employees on long-term sick leave (some final salary schemes also take this approach).

Add a note hereLeaving Service
Add a note hereWhen an employee leaves an employer (or withdraws from the pension scheme), the normal entitlement is to:
§  Add a note herefinal salary - subject to two years' service, a deferred pension based on salary at and service to date of leaving and payable from retirement date: the link to final salary is lost, but the pension must be revalued to retirement in line with inflation (or 5 per cent per annum compound, if less);
§  Add a note heredefined contribution - the fund built up to date: this will continue to accrue investment returns up to retirement.
Add a note hereIn both cases, the employee may also request that the value of the pension be transferred to a new employer's scheme or an individual pension contract.
Add a note hereIn the public sector, employees can often change employer with little change to their accrued pension.


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