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Other Types of Pensions
Saving Towards a Pension

PENSION

Director's Pension

(Also called Executive Pension, Top Hat Pension)

A means of saving towards a pension where the pension if you own and work for your own company. Also for senior executives to give them a special pension. You can take part of it as a lump sum at retirement.

A Directors Pension Scheme can be linked to a Unit Trust or OEIC including an Index Tracker Fund, or to an Investment Trust. It can also have bonuses added, like Life Insurance With-Profits Endowment Policy or be linked to a unit fund in a life company which is not a unit trust or OEIC, like Life Insurance Mixed Bond or like Life Insurance Property Bond or it can give a fixed return, sometimes called non-profit.

For more advice on pension planning turn to Saving Towards a Pension.

Who can invest Company directors and senior executives. It is most tax efficient if the scheme is non-contributory, i.e. the employer makes contributions, not the director or executive.

How worthwhile Changes to the pension rules mean that you can now make as large contributions through a Personal Pension which are cheaper to set up and which you have more control over.

Minimum Single stand alone: £250 to £7,500 but some companies only allow a single premium as an add-on to a regular contract; single add-on to regular: None to £2,500. Regular: £20 to £100 a month.

Maximum For the current contribution limits click here.

Suitable Lump sums. Regular savings.

Money back As a pension and lump sum between age 50 (55 if you were born after 5 April 1960) and 75. The pension continues until you die (or with a minimum fixed period of, say, 5-10 years). You are now able to cash part of the fund early, called drawdown, but this will be taxed as income. Widows pensions are available. If you die before you start the pension, the value of the fund or your contributions with interest, depending on the company, is returned. . If you die before you start the pension, the value of fund or premiums with interest, depending on the company, is returned subject to certain restrictions.

Interest Variable (except non-profit schemes which say at the outset what you will get). Income is accumulated.

Interest paid When policy matures mostly as a pension. See also Money back above.

Tax No tax on the lump sum nor on the interest or capital gain accumulated. Contributions get full tax relief. Basic rate taxpayers pay 22% tax on pensions in payment; higher rate taxpayers pay 40%.

Fees to pay Check before you invest. Charges deducted in many ways. Reductions for large amounts.

Passbook None. Pension document issued. Statements sent.

Children Not eligible.

Risk Depends on the investment to which the policy is linked. Run by life insurance companies which are UK authorised and covered by a 90% compensation scheme.

How to invest Ask an independent financial adviser specialising in pensions for help.

Where from A specialist independent financial adviser or direct to companies which offer low charges if low or no commission paid.

Other Types of Pensions
Saving Towards a Pension

Last updated 23 June 2008.