Other options, including existing pension schemes

Employers can continue to use an existing pension scheme provided it meets the new criteria. For example, existing defined contribution schemes – the majority of existing schemes – qualify if contribution levels are at least 8% of an employee’s qualifying earnings. The CIPD reports that the average mean contribution rates to defined-benefit and defined-contribution schemes are 9% and 6% employer-funded, plus employee contributions, so most easily meet this criterion.

Company and other pension schemes

Company pensions, also known as an occupational pension or superannuation scheme, are either non-contributory (funded entirely by the employer) or contributory, funded by a percentage taken out of employees’ earnings which may be added to by the employer.

There are two main types of company pension scheme:

final salary schemes (defined benefit or DB) based on an employee’s last, usually highest, pay. The employer must ensure the fund will always be able to provide the agreed proportion of every employee’s final salary for the rest of employees’ lives, whatever the performance of the company or investment market in years to come

money purchase schemes (defined contribution or DC) when the employer puts money into an individual pot for each employee and the pension paid depends on the investment performance of that pot.

There are a number of other pension options such as stakeholder pensions, personal pension schemes, group personal pension plans, individual arrangement, earmarked schemes, common trust funds, unfunded schemes, career-average schemes and ex-gratia benefit. They can all still be used as long as they meet the minimum contribution requirements as most would be expected to do.