Choose the right pension scheme

A group personal pension (GPP) plan is a registered pension scheme. It is a collection of individual personal plans grouped together by the pension provider.

Personal pensions

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

With-profit

Contributions are invested in equities and gilt-edged securities. The value of the fund grows as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a bad year. A terminal bonus may also be added to the fund.

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 reflects market performance more accurately than with-profits funds.

Administration costs

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 providers, so research these carefully before making a decision. Plans that let you pay lump sums and change your premium may give you the greatest flexibility. It may be helpful to get professional advice.

If you arrange for a pension provider to set up a GPP, your employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension.

Personal pension plans are an option for employees who change jobs frequently, as they will be able to continue contributing when they change jobs. 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.