A higher rate of pension
As an employer, you might wish to provide a better pension scheme for your senior executives than for the rest of your staff. Such a scheme might involve EPP money purchase benefits targeted to provide a pension equivelant to a final salary scheme accruing at a rate of 1/30th per year, whereas the main final salary scheme might offer only 60ths. These fractions refer to the rate of accrual of a pension plan.

The EPP is designed to provide a pension on a money purchase basis. This means that the value of the pension is determined by the value of the fund's assets at retirement.

 

The Inland Revenue imposes an earnings cap on pensionable earnings.

The Inland Revenue now imposes an earnings cap on pensionable earnings. For the current tax year (2002/03), the cap is £97,200 for those who joined a scheme established after 14 March 1989 or who joined an existing scheme after 1 June 1989.

Senior executives are regularly recruited at salaries in excess of this cap, and middle management in larger organisations are reaching such salary bands. Let's say you are an employer offering a final salary scheme and you provide a pension benefit at an accrual rate of 60ths to a senior employee on £120,000. Their pension is accumulating a benefit of 1/60th a year of their full final salary if they joined the scheme before the rules changed. But an employee who joined after 14 March 1989 could only accumulate a benefit of 1/60th per year of their capped final salary.

To investigate how an EPP could work for you or a key member of your staff, or to discuss any of your pension options, please e-mail or contact us.