Company Pension Options

Company Pension Options

Company pensions (also known as occupational pensions) understandably differ from business to business in terms of their options and more intricate details.  However, many of the elements are universally shared across schemes.  Your company benefit will ultimately depend on the type of scheme you decide to choose, and this will either be salary related or money purchase.

Salary Related Options (Final Salary, Employer Contributions)

So you’ve decided to opt for your company’s salary related pension scheme.  It’s a common misconception to assume that a company does not allow the extraction of your benefit until you reach the age of 65, but this is not necessarily true and since each company ruling will differ you should check their guidelines accordingly as you may be perfectly entitled to taking it early.  There is an option to claim a small part of your pension as a tax-free cash sum, a move that is balanced by simply reducing your monthly income.  If you wish them to do so, the pension administrator is perfectly capable of accurately predicting the worth of your pension upon retirement, how termination from work due to ill-health affects this final sum, and the various benefits your dependants can expect to inherit if you happen to die before them.

Money Purchase Options

You might be more inclined to choose a money purchase option, particularly convenient if you have a tendency to regularly interchange between companies.  This is a far more flexible option in terms of the ruling and minimizing risk.

After withdrawing 25% of your pension as a tax-free cash sum, the rest is used to buy an annuity.  Now, like a pair of trainers, there are many on the market and they all offer you something different, therefore making a wise informed choice is paramount, since unlike a pair of trainers, you wont be able to return it if it doesn’t quite work out for you. Your company will undoubtedly suggest a pension provider from which to purchase your annuity from, and whilst it is not essential to obey this advice, you may incur charges when you need to transfer the funds.  As usual you can seek professional advice from the Financial Services Authority (FSA) or the Pensions Advisory Service (TPAS) to aid you in the decision-making process.

Unsecured Pension

You may consider withholding an annuity acquisition, and if so you have the option of an unsecured pension (income withdrawal). Whilst this option is a viable one, very few company schemes will actually offer this alternative.  You are essentially able to utilise your pension fund as a source of income until an annuity is bought, and the fund continues to be invested in the company scheme.  If your occupational scheme does not offer an unsecured pension, you may wish to consider transferring your benefits to a personal pension programme that does, but again seek advice before rushing to any decisions.

Further advice will be available from your company scheme administrator, The Pensions Regulator, or an IFA.

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