RPSM09202020 - Member pages: Member benefits: Pension benefits from a defined contribution or cash balance arrangement: Scheme pensions

What is a scheme pension?

A scheme pension is basically a pension which is secured for you from the pension scheme fund. It can either be paid direct by the pension fund or the scheme can arrange for an insurance company to pay it on its behalf. Where the scheme pension is secured via an insurance company, the contract may be in the name of the scheme trustees or the name of the member.

If you are in a money purchase scheme you may have the opportunity to choose between a scheme pension and a lifetime annuity, unlike members of defined benefit schemes who will not have the choice and will have to have a scheme pension.

If the scheme does offer a scheme pension, generally speaking the scheme will make a promise to provide you with an initial level of pension which will:

• be paid for your lifetime (so there is a commitment of payment),
• be paid at least annually,
• not be capable of being reduced year on year (except in limited circumstances - see RPSM09101510),
• be paid by the scheme administrator (or by an insurance company chosen by the scheme administrator).

Certain schemes may also make provision for your pension to be:

• increased annually, usually based on some agreed method such as the increase in RPI,
• guaranteed to continue to be paid after your death to another person (the guarantee can be for a period of up to 10 years), or an alternative arrangement can be that if you die before the age of 75, any remaining pension funds get paid out as a lump sum. It is possible for a scheme to provide both alternatives however a pension that is guaranteed to continue in payment cannot normally be converted into lump sum.

From 6 April 2011 certain lump sum death benefits can be paid even if the member is 75 or older when they die. See RPSM10106000 for more information.