Supplementary pensions

In the UK the second tier of pension provision or supplementary pensions are known as company pension schemes, or more correctly, Occupational Pension Schemes. They have the following characteristics:

• The benefits are intended to ensure that the member acquires an entitlement to a cash benefit in the event of retirement (and possibly disability or death), representing income which would be additional (i.e. supplementary) to that due under the Social Security system
• Coverage is generally collective, and schemes normally cover a group of people (such as the employees of one or more companies, the members of an association, or a given category of workers).There may be exemptions provided by the relevant legislation
• Coverage is usually voluntary.

The type of occupational pension scheme varies enormously. Some provide relatively modest benefits while others aim to provide retiring employees with enough income to ensure the continuity of their standard of living throughout their retirement.

In most cases occupational pension provision is not restricted to income in retirement - death and ill-health benefits are also provided.

The state grants substantial tax privileges to Occupational Pension Schemes making pension provision an extremely tax-efficient form of remuneration.

Some employers offer an Occupational Pension Scheme to all employees, while others offer it to selective grades. If certain categories of employees are excluded, it is important to ensure that the exclusion will not be found unlawful.

Employers must ensure that the exclusion of certain categories of employees - notably those who work part-time - does not constitute any form of indirect sex discrimination. The rules of Occupational Pension Schemes may exclude employees who are younger than a stated minimum age, or who have been employees for less than a minimum "waiting period".

As an alternative to Occupational Pension Scheme provision, the employer can:

• Decide on a case-by-case basis whether to contribute directly to each employee's Personal Pension Plan
• Act as a focus for a group personal pension arrangement, whether or not the employer also contributes directly to the Personal Pension Plans of individual members.

A Personal Pension Plan is fundamentally different from an Occupational Pension Scheme and is not subject to the general requirements of the Pensions Act 1995. A Personal Pension Plan is regarded under the Financial Services Act 1986 as an investment product, whereas an Occupational Pension Scheme is not.

Personal Pension Plans are subject to a different tax regime from that applying to Occupational Pension Schemes.

An employee may not contribute to a Personal Pension Plan if he or she is also pensioning the same earnings via an Occupational Pension Scheme.