What Benefits Are Provided?

A good occupational pension scheme provides benefits additional to a pension for you at retirement. For example, if after your retirement you should predecease your wife, she may be entitled to a pension for her lifetime, commonly at half the rate of your pension. There will probably also be benefits payable should you die before retirement. These may take any or all of the following forms:

(a) a refund of some or all of your own contributions;

(b) a single tax-free lump sum payment of up to four times your

annual salary;

(c) a pension for your widow.

The table on page 18 illustrates a lump-sum payment for death in service, but not a life pension, to the widow.

Unfunded schemes

The payment of pensions by a company to its retired employees can clearly be very expensive to the employer. In the old days, before pension funds became an established part of the pattern of employment, it used to be common for small firms or companies to pay modest pensions to their retired staff as an act of grace, not as an obligation, and of course these pensions had to be paid for out of profits earned by the business after an employee's retirement.

If the company encountered hard times, became insolvent or went out of business, the pension disappeared. No fund had been set up out of which to pay pensions. Such plans are said to be unfunded.

There are, even today, some unfunded schemes, but most of them are in the public sector where the payer of the pensions can fall back on current taxpayers for any money required to pay for the pensions. Thus we have the state pension, which is funded only partly by the pay-as-you-earn National Insurance contributions, for these are sufficient only to pay present pensions, not future ones. Pensions in later years will have to be paid for from future NI contributions supplemented in all probability by taxation. There is also the Civil Service pension schemed, under which nobody makes any 'pension contributions', the entire cost of the pensions as they fall due for payment, including the linking of them to the Retail Price Index, having to be a charge against future tax revenue. There is no fund. On the other hand many schemes in the public sector (e.g. Post Office Superannuation) are completely funded.

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