Bp_Case_Study_2

It is very impo[1]rtant to start thinking about the pension as soon as possible. There are various pension schemes that one should consider in order to achieve the desirable objectives. State Pension The State Pension scheme is financed and systematized by the UK government. The individuals must work in the UK and can build up the State Pension before they are given the right to any pension. This type of the pension scheme is available to everyone who has donated an adequate[2]e amount of National Insurance for a sufficient number of years. The individuals who work and receive more that £97.65 per week are entitled to pay National Insurance. However if one gets less that £97.65 per week does not need to pay National Insurance, but in the case of having other benefits, one will still receive the basic state pension. It is recognized that each year of that payments accounts as a qualifying year. This pension scheme is presently boosting with the inflation, based on the retail price index.[3] The state pension scheme requires for men to be 65 years old, while for women it is 60. However from 2010 to 2018 the pension age for women will increase to 65 and by the 2020 the pension age for men and women will raise to 66. Occupational Pension Scheme Occupational pension scheme are recognized to be funded or unfunded. Unfunded schemes are designed for the obtainable pensioners and can be taken from the current contribution. Funded schemes function by creating a investment fund in to which constitutions are made. In the UK 25% of benefits contributed can be seen as a tax-free at retirement. An occupational pension scheme is usually set up by the employer in order to provide the pension for the employees. The UK law does not oblige the employee to contribute toward his pension, however usually the contributions are made by the employer and the employee. [4] All the employers’ contributions are taxable and employee can contribute p to 100% of taxable earning. Occupation pension scheme consists of final salary (defined benefit) and money purchase scheme (defined contribution). Final salary (defined benefit) This type of pension scheme is usually used by the greater part of medium to large employers. This type of the pension scheme is based on the number of years one has been a member of that scheme (is known as pensionable service), the average of the last three years of pensionable earnings and the proportion of those earnings, which one receives as a pension for each year of membership (called the accrual rate). [5] This scheme is mainly run by trustees and the employer is in charge to ensure that there is a sufficient amount of money at the time when the individual retires. The main benefit of the final salary pension scheme is the ability of the pension to increase accordingly to the pay rise and conversely is protected against inflation. Money purchase scheme (defined contribution) This scheme is sponsored by both employers and employees. Employees contribute money into a retirement fund, which is then invested by an insurance company or, for example, in stocks, and managed in the profit of the employees. When the employee retires, the retirement find is used to buy an annuity- a financial product which provides an income for the rest of that person’s life. [6] Therefore the amount of the employee’s pension depends on how solid the retirement fund performs and on what annuity rates are available at retirement time. However, this pension scheme does not provide the guarantee by the employer that a pension fund will pay out a set amount on retirement. The risk performance of the pension is under the employee’s liability. Personal Pension Scheme Personal pension scheme is a long-term investment that aims to help individuals to build up sum of money which can be used to buy income after the retirement. [7] The scheme is brought up from various financial institutions, such as banks, insurance and building societies and investment companies. The personal pension scheme is organized by paying a frequently amount of money to the scheme provider, who then will invest on the individual’s behalf. [8] Under the UK 25% of that fund can be used as tax free, while the rest of the money must be invested in the annuities. The individuals who earn personal pension plan can start to get pension from age 55 to 75. Also this plan and the annuity contract do not protect individuals from inflation. The inflation can corrode the value of pension; this must be considered when deciding on the amount to invest in the fund. [9] . : ----------------------- [1] Shirin lectures [2] Shirin lectures [3] Gov.uk [4] http://www.businesslink.gov.uk/bdotg/action/detail'itemId=1074647247&type=RESOURCES [5] http://www.hmrc.gov.uk/forms/2007/ca14c.pdf [6] http://news.bbc.co.uk/1/hi/business/3197897.stm [7] http://www.aviva.co.uk/personal-pension/ [8] Shirin lectures [9] Shirin lectures