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 normally 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. You may also need to contribute to these schemes. As Final Salary schemes are becoming increasingly more expensive for employers, most new members to a company pension scheme will be offered a Money Purchase 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 could both contribute to your pension fund. The pension you receive is based on many factors such as contributions paid, returns on investments and any charges at the time you take your benefits. Note the value of your fund may go down as well as up and you may not get back what you put in.

By paying into your company pension you could be taking advantage of their contributions.

If you don't join your company's scheme you may miss out on any contributions your employer may make, or any reduced charges that may be made available.

Potential of a Money Purchase scheme
In some company pension schemes your employer would normally, at least, match your contributions. If, for example, you were to pay in £100 per month, your employer would contribute £100 too. You will also receive tax relief on your contributions, up to a certain limit.

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.

By paying into your company pension you could be taking advantage of their contributions.

Matching contributions example
For example if you contributed £100 per month (which includes £20 basic rate tax relief) over 20 years, assuming your employer matched your contributions, this would give you a potential pot of £48,000, or even more. Broken down, this means you'd contribute £19,200; the taxman would contribute £4,800; and your employer would contribute £24,000.

More information
Speak with your employer to find out if they offer a company pension and what the particular benefits of the scheme are.

If you've lost track of a Company or Personal pension, you can use the Pension Tracing Service to find the details.

This is for illustration only and is based on our current understanding 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.

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