Those working in the UK are provided with occupational pension schemes set up by their employers. This kind of pension comes in two forms: final salary schemes and money purchase schemes. If you are planning to eventually move to the US and would like to continue enjoying this benefit, then knowing what these two form of occupational pension are all about would eventually help you in the process of UK pension transfers.
Final Salary Schemes
The Final Salary Pension Scheme is also known as a “defined benefit scheme”. This means that your pension is automatically linked to your salary, which means that an increase in salary would also increase the amount of your pension. In the end, the final pension you will be receiving will be based on the total number of years that you have been working and the final amount of salary you were receiving. This also means that any other form of investment, or the performance of the stock market, would not affect your pension in any way. How does it work? A portion of your pay is used for your pension fund, with your employer paying the rest of the premiums. Although this proves to be one of the best pension funds you can enjoy, a lot of employers do not offer this scheme anymore.
Money Purchase Schemes
The Money Purchase Scheme is also known as a “defined contribution scheme”. This means that the contributions you make towards the scheme will be invested, which will be the basis of the amount of money you will be getting once you reach retirement age. There are cases when the employer will also offer to pay a portion of the contributions, although this is not a common scenario. There are also cases when your employer will be forced to give you automatic enrollment where they would have no choice but to contribute to your pension fund as well.
Because the type of occupational pension you have will greatly affect the amount of money you will be getting when you retire, it is best to consult an expert in UK pension transfers. This will allow you to maximize the benefit and find out what your options are once you’re ready to move to the US.