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More about Pensions and Annuities

What you receive from your pension plan, is usually dependent on the type of scheme you belong to. Either your scheme is what is known as a defined benefit scheme, or a moneypurchace scheme.

Defined Benefit Scheme:
Put simply the benefits you accrue from this type of scheme, are based on length of service and the amount of your final salary at retirement. The guaranteed benefits do not reflect the amount of money paid into the scheme by yourself or your employer, or the investment management. However sometimes, if the investment management has been particularly good, the surplus can be distributed as extra benefit. 

Types of scheme would include Local Authority and large plc.Companies.

Money Purchase Scheme:
As the name suggests these type of schemes are funded by personal and sometimes company contributions. The benefit you receive is dependent mainly on three factors, the amount of money that can be accumulated by the investment managers and the amount of annuity that can be purchased per £ of your personal retirement fund.

The third factor is the age you decide to take the benefits.

The annuity rate, as this is called, can vary from week to week and year to year, both upwards and downwards. The basic annuity you receive although guaranteed for life is dependent on when you take the benefit (this could be favourable or not as the case may be). Once you start taking the benefit the terms of payment can not be altered.

This is one reason why it is important to try to secure the best rate available to you personally.

Types of scheme that can fall into the above category are, Self Employed Retirement Annuities, Personal Pension Plans and top up schemes such as Voluntary Contribution Schemes, either company sponsored or free standing. 

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