Page 93 - Group Insurance and Retirement Benefit IC 83 E- Book

Special cases of the graded type of scheme are:

(i) Pension accrues as a percentage of each year's pensionable salary; i.e. final pension is
related to average pensionable salary and years of pensionable service.

(ii) Pension accrues at the same fixed rate for all members of the scheme—i.e. there is

only one grade. This type of scheme is common for works employees, whose earnings
generally vary little with age after the age of 21 (except to the extent that general wage

increases are granted.)

(2) Final salary schemes

Pensions are expressed as a percentage (or fraction) of final pensionable salary for each

year of pensionable service. ' Final pensionable salary' may be defined in a variety of
ways; not infrequently increases in salary during the 5 years preceding normal pension

date are excluded. Contributions by employees are usually expressed as a percentage of

current pensionable salary; the employer pays the balance of the cost. Past service at the
inception of the scheme is usually recognized, either at the same rate as for future service

or at a proportion of this rate; sometimes the past service provision is based on salary at

entry into the scheme, not on final salary, but this is by no means general.

(3) Fixed benefit schemes

A fixed amount of pension is payable on retirement at normal pension date irrespective of
length of service or salary. If any contributions are payable by employees, they are

generally at a fixed rate; the employer pays the balance of the cost. This type of scheme is
occasionally adopted for works employees.

(4) Money purchase schemes

Employees contribute a fixed percentage of current pensionable salary, the employer also

contributing a percentage (not necessarily the same percentage). The amount of pension
is that which can be secured by the contributions.