Occupational Pension vs. Personal Pension Scheme

Workplace pensions have helped many people enjoy a good standard of living in retirement, and they generally come in two forms: occupational and group personal pension.

In this guide, you’ll learn the difference between these two types of workplace pension, whether you have a choice between them and the potential benefits of each.

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What’s the difference between occupational and group personal pension schemes?

Occupational pensions are set up by employers to provide retirement income for their workers, while a group personal pension (or stakeholder pension) is a scheme chosen by the employer with an individual contract in place between the pension provider and the member of staff.

Both of these workplace pension schemes allow employees to save for their retirement through contributions deducted from their salaries, often topped up by their employer.

Businesses are required to offer a workplace pension by law and must automatically enrol all eligible staff.

The eligibility criteria for auto-enrolment is as follows…

  • The employee cannot already be in a workplace pension scheme
  • Are aged 22 or older
  • Are under state pension age
  • Earning over £10K per year
  • Working in the UK

Read on to find out more about these two types of workplace pensions and how they differ…

Occupational pensions

These come in two forms: defined benefit (DB) and defined contribution (DC) schemes.

Defined benefit schemes

With a defined benefit pension, your retirement savings are linked to your salary during your employment, so your pot’s value increases in line with your earnings. The income you’re entitled to at the end is not linked to any external investments, such as the stock market. It’s based on your wage at retirement and the number of years you’ve been contributing to the scheme.

In most defined benefit pension plans, you can decide what percentage of your wage is invested in your pot and your employer will contribute the rest.

Defined contribution schemes

More common than defined benefit pensions, DC schemes require employees to contribute a set percentage of their wage and the amount they’re ultimately entitled to will depend on how much was paid in over the years and how the investments have performed.

Employers may also make contributions to DC pensions, and if the staff member who holds the account is eligible for auto-enrolment, this is a legal requirement.

Group personal pensions

Although group personal pensions involve an individual contract between the account holder and the pension provider, the investment choice may be made by the provider rather than the employee.

They are similar to occupational pensions, in the sense that you make contributions directly from your wages and the money invested is used to grow your fund to provide retirement income.

Employers are not always obliged to make contributions, too – this will depend on the terms of the pension.

Should I enrol in my workplace pension scheme?

While the auto-enrollment of all eligible staff is a legal requirement on your company’s part, you have the choice to opt-out and explore alternative options if you wish.

Here are some of the things you should consider before doing this…

  • What type of workplace pension scheme is on offer?
  • Are you eligible for auto-enrolment?
  • Will your employer be making contributions?
  • What alternatives are available to you?
  • How much freedom do you want over your investments?
  • What is your appetite for risk?
  • Can you join your workplace scheme at a later date?

For those who’ve already made the decision to opt into their work scheme, most experts will recommend joining as soon as possible to get the maximum amount of benefit.

But if you think it’s worth exploring the alternatives to your workplace pension scheme, you should speak to an independent pensions expert, armed with the above questions. Make an enquiry with us and we’ll introduce you to the best advisor for your needs and circumstances, free of charge.


Can I have an occupational pension and a personal pension?

Yes, absolutely. There are other types of personal pension beside the workplace variety and you can set one of these up yourself and pay into alongside your occupational scheme.

Your options may include…

  • A self-invested personal pension (SIPP)
  • A standard personal pension (i.e. non-group)

SIPPs act as a ‘wrapper’ for your retirement investments and are geared towards people with investment knowhow and those looking for freedom of choice regarding what they can invest in. You can read more about this type of pension in our comprehensive guide to SIPPs.

A standard personal pension works in much the same way as its occupational counterpart, except it will be you as the account holder making the investment choices, not the scheme’s provider.

There is no limit to the number of pension schemes you can pay into, so it’s certainly possible to maintain your own personal pension while contributing to your workplace plan, but keep in mind that there are limits to the amount of tax relief you can get on your contributions.

If you’re considering setting up a personal pension to pay into alongside your workplace contributions, make an enquiry to speak with a pensions advisor first. They can weigh up all of the benefits and pitfalls that come with having more than one pension and will even carry out a free pension review for you to identify which investment choice is the best course of action.


Which should I choose?

Whether you should opt into your workplace scheme, pass it up in favour of your own personal pension or combine both of these options is really a question you should discuss with an independent pensions advisor, but it doesn’t hurt to do a little research before proceeding.

As a starting point, you should familiarise yourself with the benefits of both occupational pension schemes and individual pension plans.

They are as follows…

Why opt into an occupational pension?

Occupational pension schemes come with benefits, including…

  • Contributions from your employer (in many cases)
  • Life insurance that pays out to your dependents if you pass away while employed
  • Pension income if ill health forces you into early retirement
  • Pension income for your dependents and/or partner when you die
  • It’s possible to have an individual personal pension as well

Why set up your own personal pension?

People might choose to opt out of their occupational pension to go down the DIY route for the following reasons…

  • They want more freedom of choice around their investments
  • They’re in a scheme where their employer is not making contributions
  • They have a higher appetite for risk
  • They have other forms of income to invest, such as freelance work on the side
  • Your pension provider claims tax relief on your behalf

As you can see, there are benefits to occupational pensions and individual personal pensions as well as scenarios where paying into both may be viable.

The best way to determine which one of these options is right for you is to talk it over with an independent pensions expert. Make an enquiry and we’ll introduce you to one for free.


Speak to an expert

If you’re wondering whether to opt into your occupational pension scheme, start up your own personal pension plan or combine these two options, be sure to seek specialist advice first.

The independent pension advisors we work with can weigh up all of these choices and help you make an informed decision, based on your retirement needs and personal circumstances.

We won’t charge a fee for introducing you to the right expert and there’s no obligation to act on the advice you receive.

Call 0808 189 0463 or make an enquiry to get started.

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

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