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Company pension – contribution based
These schemes are sometimes known as money purchase pensions. Individual pension schemes vary, but the following describes a typical pension scheme of this type.
With this type of pension, the company usually pays an amount into your pension each month, and the company may require you to make a contribution as well.
When you retire, it is the amount that you have in your pension fund that determines the level of pension income that you receive.
Unlike a salary related pension scheme, your pension fund is not at risk if your employer becomes insolvent. The contributions that you and your employer make are invested in a fund that is earmarked for your personal retirement.
You should be aware that some employers, particularly those who do not wish to contribute to their employees’ pensions, make only a Stakeholder pension available.
If the employer is making a contribution, this provides an added benefit of joining the scheme.
At retirement you are able to take 25% of the accumulated fund in cash, currently tax-free. The remainder of the fund must be used to create retirement income, which will be taxed as earned income.
When you take income from your pension you may need to decide whether to provide that all or part of it continues for a widow/widower or dependent child after your death, and whether to provide that the pension income will increase each year.
If you die before retiring, the fund can normally be inherited by those left behind.
Contact us for further advice on pension issues, and help in choosing a pension that is right for you.
