How Company Pensions Work
A company pension plan, or occupational pension plan as it is also known, is one that an employer sets up in order to provide retirement benefits for his/her employees. From the employees' point of view, a key advantage of a company pension plan is that the employer organises the pension plan and makes a contribution to the plan on behalf of the employees. In addition, the charges associated with pension plans are generally lower for group pension plans than for individual pension plans so it makes sense to join the company plan if one is provided by your employer.
If you start contributing to one of these plans, another advantage is that your employer will take your contributions from your salary before any income tax is deducted. This means that your pension fund gets the benefit of the income tax, instead of it being paid to the taxman. This is particularly beneficial if you are paying income tax at the higher rate.
Building up your Defined Contribution Pension Plan
You are a member of a 'Defined Contribution' pension plan. This means that your pension in retirement will reflect the value of the pension fund amount that you have built up during your working years. This in turn will depend on the amount you and your employer have contributed to the plan and the investment performance of the fund, less the charges applied to the plan.
Your 'Member Schedule' or 'Member Booklet' issued when you join the pension plan, will set out the amount or percentage of salary that your employer will contribute to your pension and also the amount or percentage that you are expected to save into the pension plan.
Your Pension Fund at Retirement
Regular saving into your pension plan during your working years should mean that you have an adequate fund amount built up by the time you get to retire. At that stage you will have a number of options on what you can do with the accumulated pension fund. These will include taking part of the fund as a tax-free lump sum as well as using the fund to provide a pension income for the rest of your life. You will also have the option of taking a spouses pension that will be paid after your death. Further details on these options are set out in the 'What will I get at retirement?' section on this site.
