A group personal
pension plan (GPP) is a collection of personal pension plans (PPPs)
provided by an employer for its employees.
A PPP is a type of defined contribution
arrangement.
It is essentially an investment policy that provides an income
in retirement. It is available to any UK resident who is
under 75 years of age and can be bought from insurance companies,
high street banks, investment organisations and some retailers
(i.e. supermarkets and high street shops).
The policyholder contributes to the plan, the money is invested
and a fund is built up. 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
- the 'annuity rate' at the date of retirement. An annuity rate
is the factor used to convert the 'pot of money' into a
pension.
The policyholder can retire at any age between 55 and 75
(increasing to 77 from 6 April 2011 with transitional rules in place from 22 April
2010). 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 with
an insurance company.
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.
