Occupational Pensions 

In any organization, the Human Resources (HR) department is responsible for all the remuneration and payroll work which includes pensions as well. Therefore it is essential that the HRM be a part of the occupational pension schemes. This is because they are trained in the field and will be able to advise those employees who are entitled to receive pensions under these trustee-run schemes. The occupational pension provisions are susceptible to changes every year as a result of changes in regulations and principles, and the HRM needs to be updated with such facts.

The Pensions Act 1995 has revised the law that states that no discrimination can be made based on the sex of employees or between different divisions of workers. Among other regulatory changes, both the part-time and full-time employees are to be treated equally and given equal rights in the provision. These kinds of regulations are required to be known by the HR so that they can help those employees who are unaware of such changes. The Act also points out what information can be made available to the employees and what they are entitled to receive every year. It also indicates that the sponsoring company cannot invest the assets of the pension fund in their home ventures. Apart from that the Act also warns the employers to keep sufficient amount in the pension funds so that in the case of bankruptcy, they can pay out the liabilities without suffering much loss.

The Social Security Act, however, proved to be the star among all these as it brought forward benefits for the ‘early leavers’ (employees who leave a pension scheme midway, i.e. without completing the contributions). The Act made sure that people who change their jobs do not suffer any losses while receiving their pensions.

The “early leavers”, therefore, are given to choose between one of the below three options when they decide to work for a new employer

  • Firstly, the employees can take back whatever contributions they had made to the previous employer’s fund. They will however only get their part of contribution and not the amount the employer had paid. The employee will get the final cost after the tax deductions and can use it to invest in the new employer’s plan.
  • Secondly, employees can choose a preserved pension option. This mostly benefits those who are in the early stage of their careers. They can ask for preserved pension from their old employer and add it to the pension he/she will receive from the new employer. However, the previous employer will revalue the preserved pension with the yearly inflation rates, while the value will be calculated based on the last salary received by the employee. For this to work, the employee needs to be a member of the occupational pension schemes and will be able to utilize the benefits at a later date.
  • Finally, the last option is basically the transfer of funds from the past employer to the present employer. But for this to work, the employee has to be a member of a particular scheme for two years. When the money purchase plan is considered, the calculation is pretty simple. Both the contributions of employer and employee are taken into account along with the cost of the service of using the fund. But with the final salary scheme, the calculations become quite complicated. It includes all the details of the employee such as the term of employment, age, the last salary received and also the current interest rates. After all these calculations, the final amount that the early leavers get does not quite make up all the trouble they incurred to receive the pensions.

The main aim of any company that provides pension is to look after the welfare of its employees when they retire. The focus lies on providing a continuous source of income that allows them to enjoy the retirement life without any worries. The role of HR managers in all of these does not just involve counselling and advising the workforce but many other things as well.  The HR manager has to decide what kind of pension policy is worth for the organization. If they go for occupational pension schemes, which one will prove to be the best? They also need to decide how much contribution the employer should make so that it does not clash with other profits of the company. The occupational pension schemes are a way to show the workers that an employer cares for their interests and is a good way to save tax-free money for use in old-age. A limitation to the defined benefit scheme is that it is linked to the market and the market is unpredictable. Sometimes, there may be a surplus of funds while at other times the employer may suffer loss.

Many employers these days hesitate to take any kind of occupational pension schemes because the employees do not have any idea about such provisions. Due to this fact, they do not appreciate the contributions made by the employer and feel that their money is being wasted in such funds. According to research (Goode 1993; Taylor 2000), the understanding of different pension schemes if different in every person. Only a particular group of individuals have a clear picture about such pension schemes and are ready to accept it during their employment years. Thus, by keeping the economic changes and uncertainties of the stock market in mind, employers need to choose between various pension schemes and other additional benefits. At the end of it all, a good retirement plan is what helps in retaining an employee in a firm. On the one hand, a good pension scheme is what most employees look for, and on the other various types of remunerations also attracts them.The different levels of employees have different requirements, and the firm has to offer such a pension fund that benefits both in the long run.

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