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Pensions advice

Planning for the future will never cease to be important, regardless of your circumstances. Occupational pension schemes are one of the most effective ways to save for your retirement and are usually offered as one of the benefits when looking at new roles.

Participating in a pensions savings scheme via your employer is a more prudent way to get involved, regardless of whether you’re with a long-term employer or looking for a new job. You’ll receive tax relief on the money you receive as it is taken from you pay before your receive it (in the same way as your income tax payments). If you participate in an employer scheme, your employer will usually match the contributions you make. This could add up to a much higher level of savings than you’d receive if you contributed to a private pension scheme.

When you’re looking for a new job, ask about the pension scheme they offer, as well as any other benefits. In general, UK employers operate an opt-in pension scheme which you can usually join from the moment you start with a new company. Other organisations won’t allow you to enter their pension scheme until you’ve finished six months to a year of continuous service.

Other key points to look out for are whether you can voluntarily increase your contributions. For example, the standard scheme might ask you to make a basic contribution of 2% of your salary, which your company will then match. But you may also have the option to increase this to as much as a 10% or 12% contribution(which the company will again match).

There are two types of pension scheme; prior to committing to your employer’s scheme you should check that it’s suitable for your needs. The two types are defined benefit schemes (final salary or CARE) and defined contribution (money purchase):

Final salary pension scheme

This is the most common type of pension scheme employers offer. Also known as ‘defined benefit’ or ‘salary related’ schemes, employees contribute to the scheme and are promised a certain level of pension upon retirement. The amount received is dependent on:

• The length of pensionable service, i.e. time spent working for the company as a member of the pension scheme

• Level of earnings prior to retirement, i.e. the final pensionable salary

• The scheme’s ‘accrual rate’. This refers to the proportion of salary you receive for every year of pensionable service; this means that if the accrual rate is 50, you will receive 1/50th of your final pensionable salary for every year of service with the company.

Career Average Re-Valued Earnings (CARE) Scheme

This is another type of final salary arrangement that has increased in popularity in recent years because it allows employers to try and control funding costs.

In this type of scheme, an employee’s benefits are matched each year, rather than matching the final year’s salary. More difficult to calculate, the amount of pension payable must be calculated by up-rating the salary for every year of pensionable service in line with inflation and then aggregated. This figure is then divided by the number of years of pensionable service.

Money Purchase

Known as defined contribution schemes, the money both you and your employer contribute is invested to build up a pot for every scheme member. The amount you receive upon retirement then depends on:

• How much money was paid into the scheme

• How well the investments perform

• The ‘annuity rate’ on retirement. This is the factor used to convert the pot of money into a pension amount.

Is there a limit to how much I can invest in a pension scheme?

No. You can invest as much money as you want to. There’s also no limit to the number of pension schemes you can join. There are, however, limits on the amount of tax relief you can receive.

Will I be refunded if I move jobs?

This depends on the company, but usually if your period of service has been less than two years, you’ll get any contributions back.

If you’ve lost track of an old pension, you can trace this through The Pension Schemes Registry.

Useful Links:

• The IFA runs a website to help find local financial advisers.

Pensions Advisory Service

Further links:

- Negotiating pay

- Pay As You Earn

- Tax rebates

- Find an IT job

Disclaimer: the information on these pages is provided for your information and reference only. Before making any important decisions regarding your employment or any legal matter, you should consult a qualified professional adviser who can provide specific advice based on your individual position.