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Group Personal Pensions

Group Personal Pensions
Published:  22 Feb at 7 PM
A group personal pension (GPP) plan is a registered pension scheme. It is a collection of individual personal plans grouped together by the pension provider.

Personal pensions usually offer a wide choice of funds in which to invest and there are two main different types, both of which are discussed in more debt in their self-titled article within this set. The first, is a with-profit pension plan where contributions are invested in equities and gilt-edged securities. The value of the fund grows as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smooths returns so that some gain in a good year is held back to boost performance in a bad year. A terminal bonus may also be added to the fund.

The second is a unit-linked pension plan, these funds cover a wide range of investments. Contributions buy units in the chosen funds, which then increase or decrease according to the performance of their investments. The value of these investments reflect market performance more accurately than with-profits funds.

Pension providers pass on administration costs through pension plan charges, which are deducted from the employee's fund. Costs can vary considerably and there can be penalties for switching pension provider, so research these carefully before making a decision. Plans that let you pay lump sums and change your premium may give you the greatest flexibility. It may be helpful to get professional advice. If you arrange for a pension provider to set up a Group Pension Plan, your employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension.

If you offer all your employees access to a Group Pension Plan, you will be exempt from the requirement to designate a stakeholder pension scheme, providing that you contribute an amount equal to at least 3 per cent of your employees' earnings, you deduct employees' contributions from their pay and pass them on to the personal pensions provider if requested by the employee and the GPP has no exit penalties.

Personal pension plans are an option for employees who change jobs frequently, as they will be able to continue contributing when they change jobs. However, any special terms the employer has arranged for employees, such as lower costs or life insurance, will probably stop when the employee ceases to work for that employer. Also, personal pension schemes sometimes have high transfer penalties.