Pensions - Other Schemes

Some schemes relate the pension to your average salary over all your working life or pay you a certain amount for each year's service. But these are rare.

More common are the so called 'money purchase' schemes which save up the contributions paid by you and your employer. These contributions are invested, usually in the stock market, and when you reach pension age the accumulated fund is used to buy you a pension.

These schemes cannot make any guarantees about the amount of the final fund or the amount of the pension it will buy.

They can be better or worse than final salary schemes. But they are much more uncertain. These schemes are not generally contracted out of the state scheme and are quite common as schemes which top up the SERPS and among self employed people.

Lump Sums

Many schemes provide an opportunity for you to get a tax free lump sum out of your scheme on retirement. Some give it to you automatically; in others you can forfeit some of your pension to get a lump sum. A lump sum of up to one and a half times your final year's earnings is tax free.

There are no general rules about whether it is worth giving up part of your pension in order to get a lump sum. You should take account of the fact that the pension is taxable, whereas the lump sum is tax-free. But remember that the price of a lump sum is a reduction in your pension which will make you worse off each month until you die.

Many people have used additional voluntary contributions as a way of boosting their lump sum rather than their pension. That is no longer possible for new schemes. But if you are already in a scheme it is a very worthwhile way of bypassing the tax on earnings in your last few years of work.

Early and Late Retirement

Many schemes specify different retirement ages for men and women. It is still legal for schemes to do so, although it is not now lawful for an employer to specify different retirement ages for men and women. Most schemes allow early retirement, though you will get reduced benefits as you will be drawing a pension for longer. Schemes also allow you to defer your retirement. Schemes that are contracted out of the SERPS must revalue your pension by 71/8% a year for each year you delay. Other schemes will have different arrangements.

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Pensions - Checking Your Company Pension

Before you leave your job it is as well to check how much your pension is going to be and that you are happy with the calculation. You have a right to a document (usually obtained from your employer) setting out how the scheme works and how your pension is worked out. If you belong to a union, it can often help you deal with any queries. In particular the civil service and local government unions are very good at dealing with pension problems.
If you have changed jobs, it is as well to check up on any rights you may have from the pension scheme of any job you have left. It is up to you to inform the people who administer the scheme if you change your . . . ... see: Pensions - Checking Your Company Pension