The Growth Plan is an occupational pension scheme which is contracted into the additional State Pension (the earnings related part of the State Pension - formerly known as SERPS). Growth Plan closed to new employers at 30 September 2005.
Employers set their own contribution rate and that for their employees and can choose to pay:
• A fixed or variable percentage of pay
• Contributions on an age related basis
• Contributions based on the grade or length of service of the employee
• Contributions linked to the level of the employee’s contribution e.g. matching or multiple of employee contribution
In the Growth Plan contributions are invested in a Money Market Fund which invests in short term, high quality securities and deposits. Members are allocated investment credits that reflect the long term performance of the fund.
The cost of management and administration is passed on to the members via a deduction from their personal fund. Members benefit from lower costs than for personal pensions and many stakeholder pensions due to the fact that expenses are spread across a large membership and there are economies of scale.
Members get the full value of the contributions (less management expenses) paid by themselves and their employers and there are no cross-subsidies between members. Unlike final salary schemes the member, not the employer, bears the risk with regard to the return on any investments. Currently the management costs each year will not be greater than the investment credit allocated for that year. In simple terms this means a member’s personal fund will never be less than the net contributions received.
Members can choose their own level of death benefit provision, subject to any arrangements their employer may have made. However, the more death benefits a member chooses to provide, the lower the amount of net contributions that will be invested for a pension from the personal fund. This is because part of the contributions will have been used to pay for these additional benefits.
Contributing members of Growth Plan can secure additional lump sum life assurance cover. The choice for additional life cover will be 1, 2, 3 or 4 times annual salary. The cost of this life assurance is deducted from contributions received.
Members can also currently secure pensions to be payable to their dependants on death-in-service (i.e. whilst a contributing member of the Growth Plan before retirement).
At retirement a member’s Personal Fund is converted into a pension, either in the Growth Plan or from another pension provider. Members can tailor their benefits to suit their personal circumstances. For example, members can elect to take some of their fund as a lump sump leaving them with a smaller fund with which to purchase a pension.
The final amount of pension a member will receive at retirement will depend on:
• the level of contributions paid in;
• how well the investments have performed; and
• what it costs to secure a pension when on retirement