Benefit-related Schemes

More than 11 million people are members of occupational pension schemes of the benefit-related type. These are schemes set up by employers to provide pension and life assurance benefits for their employees in addition to those under the National Insurance scheme.

The most common ways of calculating pensions are either as a percentage of 'final' earnings before retirement or, less commonly, as a percentage of average earnings throughout service.

Average-earnings basis

This basis may be explained by means of a table showing, year by year, the amount of pension that has been earned in that year in accordance with the level of earnings. For the purposes of the example below employees have been placed in 'classes' representing their income range.

Example

Class Annual Annual Employee's Life

earnings pension for weekly assurance

each year contribution benefits

£

A not over 1,500 30 1.50 3,000

B 1,500 -1,750 35 1.75 3,500

C 1,750 - 2,000 40 2.00 4,000

D 2,000 - 2,250 45 2.25 4,500

E 2,250 - 2,500 50 2.50 5,000

F 2,500 - 2,750 55 2.75 5,500

G 2,750 - 3,000 60 3.00 6,000

H 3,000 - 3,500 70 3.50 7,000

J over 3,500 80 4.00 8,000

Note Contributions are not a precise percentage of earnings, but rise in steps. Average percentage in this example is around 5.5%.

If you have been a member of this scheme for 20 years before retiring and your earnings have been as follows, then this is how to calculate your pension:

4 years at £1,600 = 4 x 35 = £140 p.a. pension

4 years at £1,800 = 4 x 40 = £160

4 years at £2,300 = 4 x 50 = £200

4 years at £2,800 = 4 x 60 = £240

4 years at £30,200 = 4 x 70 = £280

Total pension earned = £1,020

This table is only an example; no two schemes are exactly alike. Some schemes, for instance, revalue each year's salary to take account of inflation over the period since it was earned.

• Pension Contributions
• Accounts And Balance Sheets