Company pensions
If your employer offers a pension scheme, you should seriously consider joining it, especially if your employer makes contributions as well.
Your first step should be to find out what your employer offers. There are two main types - final salary and money purchase.
Final salary scheme
Also known as a defined benefit pension, this is based on your final salary and every year you've been in the pension scheme. Typically, an employer may offer you 1/60 of your final salary for every year you've been in the pension scheme.
Money purchase scheme
This is also known as a defined contribution pension scheme and depending on the scheme's rules you and your employer may also contribute to your fund. The pension you receive is based on contributions paid, returns on investments, any charges and annuity rates at the time you retire.
If you don't join your company's scheme you'll miss out on any contributions your employer may make, or any reduced charges that may be made available. If you need more information what your employer offers please check with them.
Potential of a company pension
In some company pension schemes your employer will normally at least match your contributions. If for example you were to pay in £100 per month, your employer would contribute £100 too.
Matching your contributions in this way will depend on the scheme rules, and if they do match what you pay in, they may only contribute up to a certain percentage of your salary.
But if your company does offer this, it's worth thinking about. By paying in to your company pension you'll be taking advantage of their contributions.
Take action
Speak with your employer to find out if they offer a company pension and what the particular benefits of the scheme are.Matching contributions example
For example if you contributed £100 per month (which includes £20 basic rate tax relief) over 20 years, your employer could match this and pay £24,000, giving you a total contribution of £48,000, or even more.
See the difference it could potentially make to your retirement income if you were to top up your company pension scheme.
The value of your fund may go down as well as up and you may not get back your original contributions.
The example should not be taken as a recommendation. It is for illustration purposes only. It assumes all earnings are taxed at 20% as a basic rate taxpayer. In reality some income would remain untaxed at the basic rate. It also assumes your employer matches your contributions.
*This is based on our current understanding, as at 6 April 2009, of current tax legislation and HM Revenue & Customs practice, both of which may change without notice. The impact of taxation (and any tax relief) depends on individual circumstances.
