Retirement Finances - Company Pensions

About half of all the people at work belong to a company pension scheme of some sort. In the public sector these schemes are often called superannuation. All schemes work on the same basic principle. During your working life, you and your employer pay into a fund. When you retire, that fund pays you benefits. But the details of what you pay and what you receive differ widely from one scheme to another.

What You Pay In

In most schemes you and your employer pay in a fixed percentage of your earnings. The amount you pay in can vary from nothing up to 19 %.

Above 19 % you get no tax relief on your contributions, so they become less attractive. Your employer usually contributes as much as or more than you, sometimes very much more. In some schemes, notably the civil service scheme, the employer pays the whole cost; you pay nothing.

When you approach retirement, you can usually pay extra contributions from your final years' salaries.

These extra amounts are called additional voluntary contributions. As long as you do not exceed the limit of 19 % of total earnings, you get full tax relief on these contributions and they can boost your final pension considerably. There is a slightly higher limit for the self employed.

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Pensions - What You Get Out

The better schemes offer you a pension which is a proportion of your final salary. Normally, they pay you one eightieth or one sixtieth of your final salary for each year you have been in the scheme. So after forty years' service you will get a half (forty eightieths) or two thirds (forty sixtieths) of your final year's earnings.
As some people find that their earnings go down in the year or so before retiring, some schemes allow you to choose the best of your final few years.
The pension you receive on retirement may well be fixed at that level forever. Alternatively, it may be increased in line with inflation or by a fixed annual percentage, usually 0.06 or 9 %.
Civil service pensions and those . . . ... see: Pensions - What You Get Out