What are the Different Types of Company Pension?

What are the Different Types of Company Pension?

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Although company pension schemes may sometimes vary from company to company, it still typically categorized into two general types. These two types are final salary and money purchase scheme.

In a final salary scheme, the amount of pension fund will be based on two factors: the amount of your salary and the number of years you have been under the scheme.

In some instances under this scheme, you may only take your benefits until you reach 65, but some earlier. Also under circumstances, you may be given the option to take part of your pension as a tax-free lump sum and will receive smaller monthly income.

While in money purchase scheme, your pension will be based on how much you (the employee) and your employee have contributed and the interest that contribution has produced. The fund that this contribution has produced will be used at your retirement to provide your pension, commonly purchasing a regular income or what is called an annuity.

But at some instances, you can have the choice of taking part of your pension as tax-free lump sum, and the remainder will be used to buy annuity.

Note that how much will the fund will provide is computed using an annuity rate. This rate is dependent on factors like gender, age and interest rate at that time.

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