Pension Planning - Occupational Money Purchase

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Occupational Money Purchase

Occupational money purchase schemes are reasonably simple to understand. They work like other types of savings or investments, where money is paid in, it is invested and whatever fund builds up is yours to use for your pension.

But these schemes are unpredictable, as it is uncertain how well your investment will grow or what the annuity rates will be when you retire. This makes it difficult to plan ahead for retirement and you face the risk of your pension turning out to be less than expected.

There's no guarantee that investment growth will be enough to compensate for the effects of inflation in the period up to retirement. However, shares and share-based investments do tend over the long term to outstrip inflation easily. When looking at forecasts of how much pension you might have many years ahead, remember that you need to ignore increases, which are simply due to inflation.

From April 2001, occupational money purchase schemes can opt into the new 'DC regime'. If the scheme meets the conditions it will be able to register as a stakeholder scheme. An occupational stakeholder scheme must by definition be low charging and flexible.