What types of occupational pension schemes are there? 

Most pensions provided by employers are called occupational pensions.

There are two main families of occupational pension.

Salary related pensions (also known as defined benefit or DB schemes) pay a pension based on how long you work for the employer that runs the scheme and the salary that you are paid.

Final salary schemes use the salary you are earning when you stop being paid by your employer to calculate your pension. This is the commonest type of salary related scheme, but other schemes can use your average salary while you worked for the employer or some other calculation.

Money purchase pensions (also known as defined contribution or DC schemes) are a kind of savings scheme. You build up your own savings (often called your pension pot) made up of your contributions, tax rebates and usually an employer's contribution. The pension you receive will depend on how much you and your employer contribute – the defined contribution, how well the pension fund's investments perform and annuity rates when you retire. An annuity is a financial product which will pay you (and possibly your partner when you die, if you choose this kind of annuity) an income for life. You normally use your pensions pot to buy an annuity, although you can now withdraw some of the money from your pensions pot without buying an annuity.

Employers who provide salary related schemes usually provide money purchase schemes, such as AVCs and stakeholder pensions, in addition for staff who want to save more.

There are many variations of both these broad types of pension, and some hybrid schemes that take elements from both.

Employers can also provide a gateway to personal pensions – both stakeholder pensions and a special kind of personal pension called a group personal pension plan.  While your employer may contribute to these personal pensions and you may have the deductions taken straight from your pay packet these are not strictly occupational pensions. 

Useful background can be found at the Pension Service website.