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Company Pensions Guide

Risks of money purchase scheme

Investing in the stock market means the value of a pension fund suffers if markets fall.

Also, the fund is then used to buy an “annuity”, an income for life. But annuity levels have fallen dramatically in the past 10 years, the result of a drop in long-term government “gilts” (bonds), against which annuities are largely based.

Finding out about a company pension

You can find out more from the company itself (through its personnel or human resource departments) or else directly with the company that administers the pension scheme.

Details of who to contact should be included in your scheme booklet, usually obtainable from your personnel or human resource department. You should have been given a copy of this when you joined the company.

Stakeholder pensions

In recent years, the government has also introduced so-called stakeholder pension schemes. These are discussed in more detail elsewhere.

Employers are allowed (in some cases required) to offer stakeholder pensions to their staff. But while they are allowed to make contributions into a stakeholder pension, they are not required to by law.

Maximum savings limit

Since April 2006 the restrictions on contributions have been removed. However, tax relief is restricted to an annual allowance. Individuals can obtain tax relief on their contributions of up to £3,600 or 100% of earnings if greater.

Tax relief on contributions into occupational schemes is the same as those for personal pensions: so if you are a higher rate taxpayer and put in £60, the taxman will chip in another £40.

For lower-rate taxpayers, the relief is currently £20 from the taxman for every £80 you put into a pension.

In its 2004 Budget, the government announced “lifetime limits” for savings into a pension. Basically you can save up to £1.65m in a pension scheme in the current tax year, rising to £1.8m in the 2010-2011 tax year.

If you save more than this then the government will tax you on the surplus. This is expected to cause problems for between 5,000 and 10,000 senior executives whose pension funds may have more than this limit in them.

There are some fairly complex ways in which this can be minimised and any current surplus protected. For anyone potentially in this position, expert financial advice is required.


More pages

Page 1: Introduction
Page 2: Risks of money purchase scheme

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