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Saving Towards a Pension
PENSION
(Also called AVC, Additional Voluntary Contributions, In-house AVC)
A commitment to make extra contributions to raise the pension you get from your job when you retire. Your main job pension sometimes depends on how many years you have been in the scheme and your final salary at or near retirement. But the extra pension from a top up plan is usually based on how much you have paid and the interest and/or capital gains on the investments in which your contributions are placed. Schemes can be invested in a building society or with a life or unit trust company.
Who can invest Anyone in a job pension scheme.
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 Around £10 a month.
Maximum From 6 April 2006 you can pay up to the full amount of your salary to all your pension schemes. For the current contribution limits click here.
Suitable Regular savings.
Money back As a pension (and a lump sum provided you take it after 6 April 2006) starting at the retirement age for your job pension scheme and continuing until you die (or for a guaranteed period of say, 5-10 years) or until your surviving spouse dies. The rules about how much you can pay and receive are changing from 6 April 2006, see Saving Towards a Pension.
Interest Variable or fixed.
Interest paid When you reach the pension age of your job. 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 Building societies make no charges. Life insurance companies: Charges are deducted in different ways and can be very high.
Passbook None. Statements sent.
Children Not eligible.
Risk Depends on the investment in which the contributions are placed.
How to invest Your employer invests for you in a building society, life Insurance company or unit trust.
Where from Ask your employer. Building society schemes often offer the best value if you only have a few years before retirement. You have to use a scheme offered by your employer. However your employer may have negotiated a better deal (ie with lower charges) than you could do yourself with a Pension Free Standing Top Up Plan.
Other Types of Pensions
Saving Towards a Pension
Last updated 23
June 2008.