Money Purchase Plan
This is also known as a defined contribution pension scheme and is set up by your employer and provided by us to help save for your retirement in a tax-efficient way.
And with average life expectancy increasing, saving in a pension and topping it up could be a great way to help build up a larger fund for when you retire.
- You can change your regular payments as well as make additional one off payments.
- Contributions to a Money Purchase Plan qualify for tax relief.
- Your employer can contribute to your plan.
- You can invest your contributions in a range of funds.
Risks and considerations
- This product is only available through select employers.
- The value of any investment can go down as well as up and so you may not get back what you put in.
- Tax relief will depend on your individual circumstances and is subject to change in the future.
- There will be charges for managing your plan and your investments.
There are various reasons why you could consider saving into a Money Purchase Plan. For example:
- Flexibility - subject to the scheme rules you can make one-off payments to top up your account, and change your regular payments at any time without penalty. Note that charges will continue to be deducted. You can also transfer your plan to another arrangement before you start taking your pension. This can be a complicated decision and therefore you should consider taking financial advice.
- Tax benefits - saving in a pension is tax efficient. As contributions are taken from your salary you'll receive immediate tax relief on the money you pay into your pension. Subject to HM Revenue & Customs (HMRC) limits, each £100 you invest into your pension will only cost you £80 (as a basic rate taxpayer) as the remaining £20 that you would normally pay to the taxman will be paid into your account as tax relief instead. This will be higher if you are a higher/additional rate tax payer. You are also allowed to usually take up to 25% of your fund as tax-free cash when you retire. Note that pensions in payment are taxed as earned income.
- Employer contributions - depending on the scheme both you and your employer can contribute to your plan - potentially boosting your retirement income.
- Access to a range of funds - trustees of the plan make available a range of funds from which you can choose The range includes unit-linked funds from leading fund managers, as well as the Prudential With-Profits Fund. Bear in mind that the value of your investment may go down as well as up and you may not get back your original investment.
Contributions from your employer
In some Money Purchase Pension schemes your employer will normally at least match your contributions, If, for example, you were to pay in £100 per month (including tax relief, subject to government limits), your employer would contribute £100 too. Matching your contributions in this way will depend on the plan rules, and if they do not match what you pay in, they may only contribute up to a certain percentage of your salary.
Pensions and tax
Paying into a pension plan attracts tax relief (which is restricted), this is known as the annual allowance. You usually pay tax if savings in your pension plan go above the annual allowance. When you're ready to take your pension benefits, if all of your benefits exceed a lifetime allowance you may be subject to a tax charge. You may also have to pay tax when you start taking an income from your pension.
Understanding all of the tax rules can be very complicated so we’ve prepared a guide to show how this may affect you. Our Questions & Answers document provides information such as:
- Tax relief on pension contributions and the limits
- Annual Allowance
- Tapered Annual Allowance
- Money Purchase Annual Allowance
- Lifetime Allowance
- Pensions Protection
You can also get more information on the gov.uk website by visiting www.gov.uk/tax-on-your-private-pension.
See our tax relief calculator to see how much money your pension contributions could get with the help of the tax man.
To learn more on the Money Purchase Pension please see the Money Purchase Pension Key Features.
Are you an existing customer?
See our dedicated Money Purchase Plan page in the existing customer section, where you can log in to your individual plan
If you already have a Money Purchase Plan, read about the benefits of topping up.
Please speak to your employer to see if they offer an Money Purchase Plan with Prudential before contacting us.
Monday - Friday, 8.30am - 6pm
A pension scheme provided (sponsored) by an employer for its employees. Company pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes).
The UK government encourages you to save for your retirement by giving you tax relief on pension contributions. Tax relief works by reducing your tax bill or increasing your pension fund.
We are not recommending one product over another. We recommend you seek financial advice if you’re unsure about what product could be right for you. The information above is based on our understanding of current taxation, legislation and HM Revenue & Customs practice, all of which is liable to change without notice. For more information please visit www.hmrc.co.uk.