Group Personal Pensions
A group personal pension plan (GPP) is a collection of personal pension plans (PPPs) provided by an employer for its employees.
It is essentially an investment policy that provides an income in retirement and is available to any UK resident.
The employer makes contributions on their employee’s behalf and can also require the employee to make contributions. As a group arrangement the employer makes one contribution usually on a monthly basis which caters for employer and employee contributions for all members of the scheme. If employees are contributing their payment is deducted automatically via the payroll system and is included in the above payment. Employer contributions are treated as a business expense and qualify for tax relief in the normal way. Employee contributions are deducted net of basic rate income tax. Higher rate tax payers can claim additional relief from HMRC.
The contributions to the plan are invested by the insurance company and a fund is built up for each individual. The amount of pension payable when the policyholder retires is dependent upon:
- the amount of money paid into the scheme;
- how well the investment funds perform; and
- length of service
The policyholder can retire at any age after age 55 (subject to plan restrictions). When the policyholder does retire, they can generally take up to 25% of the value of their fund as a tax-free lump sum. The remainder of the fund can be used to buy an annuity wit an insurance company or could be used to provide an unsecured pension (USP) by way of income drawdown.
What distinguishes a GPP from an individual personal pension plan (PPP) is that the charges levied by the provider under the GPP may be lower than under the equivalent PPP. The provider, because they are dealing with bulk business, may be able to offer a reduction in their normal charges.