What is a pension?

A pension is a source of regular income to live on when you retire.

What are the different types of pension schemes?

Company (occupational) pensions

An occupational or company pension is another term for a workplace pension scheme. It is usually used to describe schemes run by private sector employers.

Qualifying workplace pension

As a result of automatic enrolment legislation, all employers have to offer their employees access to a workplace pension scheme that meets certain minimum standards. 

Master Trust 

A Master Trust is a defined contribution, occupational scheme which is set up under trust.  The scheme's aim is to provide a workplace pension that can be used by multiple unrelated employers.  

National Employment Savings Trust (NEST)

NEST is the Government's workplace pension scheme set up for automatic enrolment.

Where an employer does not provide access to a workplace pension of its own they can use NEST to meet their workplace pension duties, no matter how large or small their organisation. They can use NEST on its own or alongside a scheme they already have in place.

Personal pensions

Personal pensions are provided by insurance companies and banks and are popular with the self-employed who do not have access to a workplace pension.

Some employers offer personal pension plans to their employees and pay contributions into it.

Personal pensions offer investors a choice of investment funds to choose from. These investments are used to buy a pension at retirement.

Stakeholder pensions

Stakeholder pensions are essentially low cost personal pension plans.

Given the changes to workplace pension schemes under automatic enrolment the future of employer sponsored stakeholder schemes are uncertain, as many will require amendment in order to meet the employer workplace pension duties.

 

How do Defined Benefit/Final Salary schemes work?

On a basic level, your pension is based on the length of your pensionable service in the scheme, your final or average salary (dependent on scheme rules) and the accrual rate for the scheme (a fraction of your salary).  

When you retire you can take a guaranteed full pension from the scheme or a reduced pension and tax free cash lump sum.  Other retirement options may be available to you. To find out more, please read your scheme/plan/fund guide or contact the administration team on the details in the Contact us page of this website. 

How do Defined Contribution/Money Purchase schemes work?

You build up a pension fund using your contributions and your employer's contributions (if they make any) plus investment returns (if any) and tax relief. The value of your pension fund under a Defined Contribution/Money Purchase scheme is not guaranteed.

When you retire you can usually take a tax free lump sum from your fund and use the rest to secure an income - usually in the form of an annuity. Other retirement options may be available to you. To find out more, please read your scheme/plan/fund booklet or contact the administration team on the details in the Contact us page of this website.

What is a tax free cash lump sum?

Pension schemes, whether they are work based or personal pensions, usually allow members to take part of their benefits as a tax free lump sum when they retire.  The scheme can pay a tax free cash sum on retirement.

What is an annuity?

An annuity converts your Defined Contribution/Money Purchase pension fund into an income for the rest of your life.

Annuities are sold by life insurance companies and you can add different options and get different types depending on your needs and circumstances.

If you are part of a Defined Benefit (DB) Pension Scheme then the scheme pays pensions straight from the scheme, so you will not be required to buy an annuity if you join the scheme.

Which retirement option should I choose?

Access to paid for retirement advice 

To help you understand your retirement options and decide which one is right for you, the Trustee has appointed Origen Financial Services (‘Origen’) who are authorised and regulated by the Financial Conduct Authority (FCA) to provide you with impartial financial advice on your Northumbrian Water Pension Scheme benefits, paid for by the Scheme. You can find out more about this, including how to contact Origen, in the leaflet “Paid for financial advice for eligible Northumbrian Water Pension Scheme members”.

Neither the Trustee of the Scheme nor the Scheme’s administrator can advise you on which options to choose. The Trustee strongly recommends that you talk to a suitably qualified financial adviser to help you make your retirement decision. Whether you use your own adviser (at your own cost) or the advice service from Origen (paid for by the Scheme) is completely up to you.  Speaking to a financial adviser does not mean you have to take up a particular option.

Important: the choice is YOURS: Although the Trustee has appointed Origen and is paying their fees, the advice Origen provide will be completely impartial; the advice contract will be between you and Origen. You’re under no obligation to follow any advice Origen provide but, if you’re considering transferring when you have been advised not to, the Trustee strongly recommends you discuss this with your financial adviser so that they can ensure you understand the risks. Please also be aware that if you decide not to follow Origen’s advice, Origen do not have to process your chosen choice on your behalf.