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Group Personal Pensions

By: J.A.J Aaronson - Updated: 4 Oct 2012 | comments*Discuss
 
Group Personal Pensions Scheme

Many employers offer some sort of pension scheme as an incentive to their employees. In many cases, this is a deciding factor in the choice of whether or not an individual chooses to work for a particular company, as an effective pension scheme is vitally important for security and comfort in retirement. However, the variety of pension schemes available can be overwhelming.

Basic characteristics

A considerable number of employers have shunned the Stakeholder Pension Model in favour of what is known as a Group Personal Pension, or GPP. Essentially, a GPP operates under the same rules as a regular personal pension plan, in that it involves regular payments (or, in some cases, a single payment at the outset) to a pension provider, who is then made responsible for investing this money in order that the pension fund grows.

This investment could be seen as emulating the contributions that an employer would make to an occupational pension scheme, thus making Personal Pensions attractive to those without access to such a facility.

A GPP has exactly the same characteristics as a personal pension, but involves a number of such pensions being ‘grouped’ together by a single provider. An employer then offers its employees access to this group through their own pension.

Key Benefits

A GPP can offer several key benefits to employees. The most important of these revolves around the charges that are imposed by the provider. Charges on single personal pensions can often become ridiculously high, meaning that your actual pension fund is significantly reduced.

In a GPP, your employer should have reached an agreement with the provider whereby they offer reduced charges in return for the bulk business. Depending on the provider and the deal struck, these savings can be considerable – and, of course, this is translated into a larger final fund on retirement.

Stakeholder schemes

Although the prospect of lower charges seems attractive, it is worth considering whether a GPP is actually the best choice. Certainly, if you have the option of choosing either a GPP or a regular personal pension from your employer, the GPP will almost certainly offer the best deal as it is cheaper to run.

However, this does not necessarily hold true when GPPs are compared to stakeholder pensions. In the case of stakeholder schemes, it is very important to remember that charges made by the provider are capped by law; in the first 10 years of the scheme your provider may not make charges exceeding 1.5% of the value of your fund, and this is reduced to 1% in the eleventh year.

This is in contrast to a GPP, under which your provider can raise their charges at will – particularly if they started low in order to attract new custom. Furthermore, stakeholder pensions offer considerably more flexibility to those who wish to ‘pause’ and then restart payments. In these cases, contributors to stakeholder schemes will not incur any charges; in contrast, those who have a GPP plan are likely to be charged considerable one-off fees.

As can be seen, therefore, while GPPs can offer considerable savings in comparison to regular personal pensions, they do not necessarily hold their own against stakeholder schemes.

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