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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