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Money, tax and benefits
Understanding company pensions
If your employer offers a company ('occupational') pension scheme, it means the company usually contributes towards your pension. There may also be payments to a spouse, civil partner or dependant when you die.
Types of company pension
Company pension schemes vary from company to company. Your scheme is likely to fall into 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've been in the scheme.
Money purchase scheme
With a money purchase scheme the amount you get 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). The amount that you get will depend upon various things such as your age, gender and health and, with some types of scheme, your marital or civil partnership status.
Contributing to a company pension
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).
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 (irrespective of age) - and get tax relief on contributions of up to 100 per cent of your earnings (salary and other income) each year, 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.
Claiming your pension
The age at which you can take your company pension will be set out in the scheme rules. Your pension scheme administrator will be able to provide you with this information.
Obtaining a company pension forecast
Your pension scheme administrator can provide you with an estimate of how much you will get when you retire. You can also obtain estimates of any survivor's benefits that may become payable and how much you will get if you have to retire early due to ill health.
Up until April 2006 you couldn't 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.
What happens if you leave your company?
Although you cannot generally pay into a company scheme after you stop working for the employer running the scheme, you will still be a member (known as a deferred member) of the scheme.
If it is a salary-related scheme, your benefits will be revalued on a regular basis to ensure they keep pace with inflation. If it is a money purchase scheme your fund will continue to be invested and you will continue to receive yearly statements and forecasts on how it's performing.
It is therefore important that you tell your pension scheme administrator if you change address.
As a deferred member, you might not be entitled to some scheme benefits. For example, 'death in service' benefits may only apply to members who are still employed by the company.
It is possible to transfer your fund out of a company scheme and into a personal pension or a different company scheme (if you've changed employers), although you might have to pay some administration costs.
However, it is not always in someone's best interests to do this - there may be advantages to becoming a deferred member instead. It may be worthwhile taking independent advice before you make a decision. You can also contact The Pensions Advisory Service which offers free pensions advice.
If you're worried about the future of your company pension
If you're worried about the future of your company pension, talk to your pension scheme administrator about your options. You can also get free advice from The Pensions Advisory Service.
If you're worried about the way your scheme is run
You can seek advice from The Pensions Regulator which regulates the way companies run their pension schemes and can investigate problems and force companies to take action.
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