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Sunday, 30 October 2011

Understanding company pensions

There are different types of company pensions (also known as occupational pensions) that are available. Get the information you need to help you decide whether you want to contribute towards your company pension. And find out what to do if you leave your company.

Types of company pension

Company pension schemes vary from company to company. Your scheme is likely to be one of two general types – a 'salary related' or 'money purchase' scheme.

Salary related scheme

In a salary related scheme the amount you get is based on your salary and the number of years you have been in the scheme.

Money purchase scheme

A money purchase scheme is based on how much has been paid into the scheme and how well the money has been invested.

On retirement, your fund is used to provide your pension, usually by buying an annuity (a regular income for life).

What if your employer does not offer membership of a company pension scheme?

Your employer is required to offer you the chance to join a pension scheme. Find out more about your employee rights to a pension scheme through the workplace.

If you work part time and your employer has a company pension scheme, you will usually be allowed to join it.

Contributing to a company pension

Before you join a company pension scheme, you need to check:

  • how much you will have to pay
  • what contribution your employer is going to make

Company pension schemes usually require you to make a regular contribution based on a percentage of your salary. You may also be able to boost your benefits by making additional voluntary contributions (AVCs).

You get ‘tax relief’ on the money you pay into your pension. This means you pay less tax because your employer takes the pension contributions from your pay before deducting tax (but not National Insurance contributions).

Changes to pension rules in April 2006

If you joined your company pension scheme during or after 1989 you were restricted on how much you could put into your company pension scheme.

However, following changes to pension rules in April 2006, you can now save as much as you like into any number and type of pensions. You are able to do this at any age. You also get tax relief on contributions of up to 100 per cent of your earnings (salary and other income) each year. This is subject to an upper 'annual allowance'.

Savings above the annual allowance and a separate 'lifetime allowance' will be subject to tax charges. These allowances will be restricted if you become unemployed and wish to continue to pay into your pension scheme.

Having a company pension does not affect your Additional State Pension entitlements. But you will lose some or all of your additional State Pension if your company pension scheme is contracted out.

Claiming your pension

If you want to know at what age you can take your company pension, this will be set out in the scheme rules. Your pension scheme administrator will be able to provide you with this information.

Getting a company pension forecast

Your pension scheme administrator can provide you with an estimate of:

  • how much you will get when you retire
  • estimates of any survivor's benefits that may become payable
  • how much you will get if you have to retire early due to ill health

Up until April 2006 you could not draw your pension from a company scheme and continue to work for the same employer. Following the April 2006 changes, you are able to do this, providing your particular scheme allows you to.

Leaving your company

If you leave your company, find out about what your company pension options are.

Worried about your company pension

Find out who to contact if you have concerns about your company pension.

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