What is a Pension plan?

A pension scheme is a tax efficient way of saving for your retirement. You can either have a Personal Pension Plan or a "Company" based pension scheme, which will be governed by Occupational Scheme Rules.

Personal Pension Plan:
In a personal pension you will build up your own individual account and you may invest in a variety of different funds. You and your employer can contribute into the scheme within annual limits set by the Inland Revenue.
When you retire you may take up to 25% of the fund as a tax-free lump sum.
You must use at the remaining part of the fund to provide an income for the rest of your life, usually by purchasing an Annuity or using Income Drawdown see below.

State Earning Related Pension Scheme (SERPS) Rebates, Contracting Out or Protected Rights
If you are an employee, you can have a rebate of your National Insurance paid into a Personal Pension Plan instead of SERPS. This is known as 'Contracting Out' of SERPS. Rebates are age related and deciding whether to opt out of SERPS, or to opt back is a decision you should take with your financial adviser.

Monies held in a Contracted Out personal pension scheme are referred to as "Protected Rights" and you may only take a pension from a Protected Rights fund, you cannot take a lump sum.

Company Pension Schemes:
Also called a "Occupational Pension Schemes" (OPS's) or "Retirement and Death Benefit Schemes".
A pension scheme set up by an employer for the benefit of the employees. It is run by trustees and usually provides life assurance and dependant's benefits, as well as pension benefits. The scheme benefits can be Final Salary based or Money Purchase based.

Final Salary Pension Scheme
An employer's pension scheme where your retirement benefits depend on the number of years you've worked for a company, your final salary just before retirement and a formula laid down by the scheme rules.

Money Purchase Pension Scheme
This usually refers to an employer's pension scheme where your payments are invested in an individual "Money Pot" in your name.

Income Drawdown or Withdrawal
This allows you to leave your pension fund invested instead of buying a annuity. You withdraw money directly from the pension fund within certain limits set buy the Inland Revenue.
You can make withdrawals between your 50th and 75th birthday from the funds built up from your and your employer's contributions.
On your death the fund can be paid out, less 35% tax, to your spouse or your dependants.

Under Occupational Scheme Rules: -
Additional Voluntary Contributions (AVC's) Where a member of an employer's pension scheme chooses to boost their retirement benefits by making additional payments into their employer's pension scheme. You can either buy "Added Years" to increase your benefit entitlement or in some cases you invest in specific funds offered by the scheme to create your own additional pension fund.

Free Standing Additional Voluntary Contributions (FSAVC's)
Where a member of an employer's pension scheme chooses to boost their retirement benefits by making additional payments into an independent scheme, outside their employer's scheme.

For a review of your personal circumstances to enable us to advise you on the most appropriate course of action please complete our enquiry form and we’ll arrange for an independent pension specialist to contact you.

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