Occupational Pension Plan

Occupational Pension Plans

• Occupational pension schemes are pension arrangements that employers set up to provide retirement income for their employees. The benefits of an occupational scheme are that:
  your employer pays a contribution on your behalf; and
• your contributions are paid before tax is deducted, so you get tax relief atyour highest rate straight away.

There are two different types of occupational pension scheme known as money purchase schemes and salary-related schemes.

Salary-related occupational pensions

• Salary-related schemes are sometimes called defined benefit or final salary schemes and members contribute to the scheme with the promise of a certain level of pension when they retire. Your contributions are pooled with those paid by all other members and the employer. The amount of pension payable from such a scheme depends on:
• the length of time served in the scheme;
• final salary before retirement; and
• accrual rate – the proportion of salary that is received for each year of service. So, if the scheme has an accrual rate of 60, you would receive 1/60th of your final pensionable salary for each year of completed service.

For example:

• Years of service = 30
• Final salary = £25,000 per year
• Pension would be 30/60 x £25,000 = £12,500

You can usually exchange some of your pension for a lump sum, paid free of tax.

The pension counts as earned income and therefore will be subject to income tax.

Make sure you know how your benefits have built up so far. Ask for a benefit statement from the trustees of your scheme so that you can work out how much your pension benefit is likely to be when you retire.

Money purchase plans

Money purchase plans, or defined contributions plans, are funds that, at maturity, need to be converted to cash and income.

The contributions of the employer and the employee are invested until retirement and you may be able to choose investment funds from a selection of funds chosen by the scheme trustees.

For more information telephone 01225 785570 

or send us an email.

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