Group Pensions

Group Personal Pension Plans (GPP) or Group Stakeholder Plans (GSHP) are a relatively straightforward method of providing employees with a pension arrangement. As they are not classed as occupational schemes, they are not subject to the more onerous rules and regulations applicable to such schemes. Instead, they are made up of a series of individual personal pension policies, with each employee having their own policy.

Group pensions are money purchase schemes allowing both the employer and employee to contribute. On leaving an employment, an individual will see their accrued pension cease to be part of the scheme and will become an individual plan which they can continue funding, if they so wish, or can transfer elsewhere.

An employer can make contributions into a regulated pension scheme without limit subject to the wholly and exclusively accounting rules. To be eligible to make contributions and receive tax relief on personal contributions, employees must be under 75 years of age and be resident in the UK (there are some exemptions for individuals who work for the UK Government or have left the UK in the last few years).

The minimum contribution will vary between providers but is usually around £20 per month, and they can be stopped or started at any time. Given the many tax advantages that are available with regard to funding a personal pension, there are limits to the tax-relievable contributions that can be paid. Individuals are able to make contributions of up to the greater of £3,600 or 100% of their annual earnings to all of their pensions each tax year and receive tax relief on them.

There is also an annual limit – the Annual Allowance – on the total amount of pension contributions each person can make without incurring a tax charge, which includes employer and employee contributions. Where the total employer and/or employee contribution exceeds the Annual Allowance, a tax charge will apply and will be added to the individual’s taxable income to determine their tax liability. Alternatively, the scheme may agree to pay the charge from the pension benefits if it is over £2,000.

For the current tax year, the Annual Allowance is £60,000. It may also be possible for contributions in excess of the Annual Allowance to be paid, in some circumstances, under the rules which allow unused Annual Allowance from the three previous tax years to be brought forward and added to the current year’s Annual Allowance. Individuals with adjusted income for a tax year of greater than £260,000 will have their annual allowance for that tax year restricted, so that for every £2 of adjusted income over £260,000, their annual allowance is reduced by £1.