A pension scheme is a tax efficient way of saving for your retirement. You can either have a Personal Pension Plan or a "Company" based pension scheme, which will be governed by Occupational Scheme Rules.

Personal Pension Plan:

In a personal pension you will build up your own individual account and you may invest in a variety of different funds. Your scheme will usually be administered by an Insurance Company. You and your employer can contribute into the scheme within annual limits set by the Inland Revenue.

When you retire you must use at least 75% of the fund to provide an income for the rest of your life, usually by purchasing an Annuity. You may take up to 25% of the Non-Protected Rights fund as a tax-free lump sum.

SERPS Rebates, Contracting Out and Protected Rights
If you are an employee, you can have a rebate paid into a Personal Pension Plan instead of SERPS. This is known as 'Contracting Out' of SERPS. Rebates are age related and deciding whether to opt out of SERPS, or to opt back is a decision you should take with your financial adviser.

Monies held in a Contracted Out personal pension scheme are referred to as "Protected Rights" and you may only take a pension from a Protected Rights fund, you cannot take a lump sum.

Company Pension Schemes:

Also called a "Occupational Pension Schemes" (OPS's) or "Retirement and Death Benefit Schemes"

A pension scheme set up by an employer for the benefit of the employees. It is run by trustees and usually provides life assurance and dependant's benefits, as well as pension benefits. The scheme benefits can be Final Salary based or Money Purchase based.

Final Salary Pension Scheme
An employer's pension scheme where your retirement benefits depend on the number of years you've worked for a company, your final salary just before retirement and a formula laid down by the scheme rules.

Money Purchase Pension Scheme
This usually refers to an employer's pension scheme where your payments are invested in an individual "Money Pot" in your name. Your retirement benefits depend on the amount you've paid in, how much the investments have grown, and the annuity rates when you retire. This contrasts with a Final Salary scheme where your benefits depend on a formula usually linked to your salary and the number of years worked.

The scheme may be Contracted Out: a Contracted Out Money Purchase Scheme (COMP) or Contracted In: a Contracted in Money Purchase Scheme (CIMP). If you are in a CIMP then you can Contract Out separately through a Personal Pension, see above.

There are a number of other types of pension, which are described below, however, these all fall either into the "Personal" or the "Company" camp: -

Under Personal Pension Rules:-

• Group Personal Pension (GPP)
  A "grouped " set of Personal Pension Plans set up by an employer on behalf of its employees. Membership is voluntary and the employer may or may not contribute. Contributions are normally deducted from salary for all members and the total sent to the pension provider. Typically GPP's have slightly cheaper terms than individual PPP's.
  
  
• Income Drawdown or Withdrawal
  This allows you to leave your pension fund invested instead of buying a annuity. You withdraw money directly from the pension fund within certain limits set buy the Inland Revenue.
  
  You can make withdrawals between your 50th and 75th birthday from the funds built up from your and your employer's contributions.
  
  On your death the fund can be paid out, less 35% tax, to your spouse or your dependants.

Under Occupational Scheme Rules: -

• Additional Voluntary Contributions (AVC's)
  Where a member of an employer's pension scheme chooses to boost their retirement benefits by making additional payments into their employer's pension scheme.
  
  You can either buy "Added Years" to increase your benefit entitlement or in some cases you invest in specific funds offered by the scheme to create your own additional pension fund.
  
  
• Free Standing Additional Voluntary Contributions (FSAVC's)
  Where a member of an employer's pension scheme chooses to boost their retirement benefits by making additional payments into an independent scheme, outside their employer's scheme.

Lastly, a little bit about the :- Basic State Retirement Pension

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