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COMPANY PENSION SCHEMES
A good proportion of the UK’s working population are members
of a company pension scheme. Occupational pension schemes are
those run by your current or former employer/s. These come in
two basic types: defined benefit, where the benefits paid in
retirement may be based on a combination of your age, length
of service and the pensionable salary you are paid just before
you retire - your final salary; defined contribution, also known
as money purchase, which will pay out an amount based on the
size of the fund, into which your contributions have been invested,
at retirement.
Group personal pensions are becoming more popular with employers,
these are low cost personal pension plans bought by groups
of employees under the auspices of their employer. The latter
are
personal pension schemes organised as a group to share lower
costs of administration. (See section on Personal Pensions)
Your employer may make a contribution to your occupational
pension scheme in addition to deducting a percentage of your
salary and
paying it into the scheme. You may make extra contributions
to your occupational scheme to boost your pension provision
up to
a maximum of the maximum limit (annual allowance), tax relief
is available on pension contributions of up to 100% of your
taxable earnings. (You may contribute more than your taxable
earnings
but no tax relief will be given on payments above that amount).
Eligibility
Eligibility to join a company scheme varies from company to company.
Some allow their employees to join either straight away or
very soon after joining the company, whilst others put in place
conditions before an employee can join, such as a minimum number of
years of service, or upon reaching a certain age.
The two main types
There are two main types of company scheme, final salary & money
purchase . They differ greatly in what they offer and how they
work. At present, final salary schemes are the most common in
terms of number of members, but many large firms are now switching
over to the money purchase type and in particular group personal
or group stakeholder pension schemes, because they are cheaper
for the employer to fund .
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