- Helping members of occupational pension schemes to better understand their benefits.

21st November 2019
:: Scheme Member | Types of Pension Scheme | What is a pension scheme? | Pensioner members of a DB scheme

There are many types of pension scheme offered by employers for their employees. This Quicknote summary should provide you with an overview. For a more detailed description of each of these types of scheme, please see our Factsheet Types of employer sponsored pension schemes.
The term ‘pension scheme’ is referred to throughout Government legislation and refers to an arrangement that provides benefits on death, serious ill-health (terminal illness to you and me), ill-health or on retirement having reached a particular age (such as normal pension age). The benefits available from a pension scheme commonly take the form of a regular payment, usually monthly, or the payment of lump sums. A pension scheme can provide one or more, or any combination of these benefits.
What is a registered pension scheme?
Any pension scheme registered with HM Revenue and Customs (HMRC) is a registered pension scheme. A registered pension scheme qualifies for special tax privileges. If a scheme is not a registered pension scheme, these tax privileges are not available.
What are the special tax privileges?
If YOU pay into your pension scheme as a member, the scheme is said to be ‘contributory’ and your contributions will receive tax relief up to a limit set by HMRC (see our Module, A-Day: New Regulations from April 2006). If you are a basic rate taxpayer, for example, each £100 you pay in will only cost you £80 for contributions made after 6th April 2008 (as the remainder comes from HMRC).
As a registered pension scheme, your pension scheme will not have to pay tax on dividends received or capital gains tax on investment gains. This is a valuable tax privilege as it means your pension fund will grow more quickly than a corresponding scheme with the same investments, but which is not a registered pension scheme.
There are also tax privileges on some lump sum payments that can be paid by your pension scheme to YOU as a member (such as a tax-free cash lump sum) or to your dependants or beneficiaries on your death (such as death in service).
What is an occupational pension scheme?
An occupational pension scheme is a pension scheme set up by an employer to provide benefits for one or more employees.
An occupational pension scheme can be either a defined benefit scheme or a money purchase scheme. Some employers offer both types, and some have a combination of both types within the same scheme (a hybrid scheme).
What is a contributory scheme and a non-contributory scheme?
If, while an active member of your employer’s pension scheme, you pay money into the scheme, it is said to be a ‘contributory’ pension scheme. If you don’t pay money into your employer’s pension scheme but you are still an active member of the scheme it is said to be ‘non-contributory’. Some schemes have categories of members who contribute and some who don’t. This would still be classed as a contributory scheme.
People seldom have identical pensions and you should avoid drawing comparisons with colleagues whose circumstances may at first appear the same but could emerge as having significant differences.
This Quicknote forms part of our Module Types of Pension Scheme and should be read alongside the other Factsheets and Quicknotes in the series.
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
What is a pension scheme v3.2 generic
Last updated 08/05/2008
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