Group Personal Pensions (GPPs)
A Group Personal Pension (GPP) scheme is a type of money purchase pension that consists of a collection of individual personal pension plans grouped together and run by the pension provider. In this scheme, contributions are paid from your salary to the provider, who then invests the money to build up a personal fund for you, which is converted into an income when you retire.
The pension fund is usually invested in stocks and shares, with the aim of growing the fund over the years before you retire. However, it is important to remember that the value of investments may go up or down, and you may not get back your original contributions.
When an employer arranges for a pension provider to set up a GPP, they may be able to negotiate better terms from the provider (such as lower fees) than you might get if you arranged your own personal pension. This means that more of your money will be invested in the pension.
How Much Will You Get?
When you retire, the pension you receive will be based on the amount of your contributions and, where they are made, your employer's contributions, investment returns and tax relief. You may take a tax-free lump sum from your fund and use the rest to secure an income - usually in the form of a lifetime annuity. The amount of pension income you'll get will depend on:
- How much you pay into the fund
- How much (if anything) your employer pays into the fund
- The charges taken out of your fund by your pension provider
- How well your investments perform
- How much you take as a tax-free lump sum
- The type of annuity you choose
- Annuity rates at the time you retire
Conditions of Group Personal Pensions
- Regular payments - although payments can be stopped at any time (for example, for a career break) and resumed at a later date.
- An employer can make it a condition of their contributions that the employee also contributes.
- Total employee/employer contributions must be within permitted contribution levels.
- Administration costs are deducted from the individual's pension fund.
Although GPP schemes are set up by your employer, they are an individual contract between you and the pension provider.
Pros and Cons of Group Personal Pensions
Pros
- Tax relief for approved schemes.
- Employer may be able to negotiate better terms from the provider.
- Usually offer a broader range of investments than stakeholder pension schemes.
- Option to take a tax-free lump sum at retirement.
- Portable.
- Contributions optional for employers.
- Can be tailored to the individual employer.
Cons
- Employees must fund the whole of the pension by themselves if there is no employer contribution.
- May be charges for any changes made (for example, if an employee decides to switch pension schemes or stops making contributions).
What Happens If You Change Jobs?
If you change jobs, your group personal pension is usually automatically converted into a personal pension and you continue paying into it independently. However, it's worth checking to see if your new employer offers a pension scheme, as this may offer you a better deal, especially if the employer contributes.
You can take your GPP fund you to your new employer, leave it in your personal scheme until retirement, or transfer it to another provider. It is always a good idea to take financial advice before considering transferring a pension, as there are often transfer penalties involved.
