In money purchase schemes, which are sometimes known as defined contribution schemes, the employer will usually top up your contributions by between 2 per cent and 10 per cent of your salary, significantly boosting your pension pot. This means you will be able to buy a larger income when you retire.
Most money purchase schemes allow you to choose from different investment options and the size of your final pension fund will depend on the performance of these investments.

Final salary schemes

Final salary schemes promise a pension at retirement that is a fixed proportion of an employee’s salary.

These schemes are great for employees because they provide a guaranteed level of income that is not dependent on the performance of investments. But for many companies the cost has become too great and a large number have closed down.

All employee contributions to company pension schemes are tax deductible, up to a total fund limit of £1.6 million for 2007/08.

Private pensions

If your company does not offer a pension scheme, you can set up a private personal or stakeholder pension. Your employer will not usually contribute to your private pension but your pension provider will claim tax relief from HM Revenue & Customs at the basic rate of 22 per cent (2007/08 tax year) and add it to your fund. However, this will reduce to 20 per cent from 6 April 2008.

If you are a higher rate taxpayer, you will have to claim the additional rebate through your annual tax return.

Self-invested personal pensions (SIPPs)

Self-invested personal pensions (SIPPs) allow more sophisticated investors or those with larger pension funds to choose from a wider variety of different asset classes rather a smaller selection of funds.

SIPP holders can choose to invest in insurance funds, unit trusts, investment trusts, shares and commercial property.

If you require any further information about the services that we provide or would like to review your financial planning position, please email or contact us.

This article is for your general information and use only and is not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their particular situation. Levels and bases of, and reliefs from, taxation are subject to change.

Article date: 03.07