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In broad terms a company pension can be explained as a pension which is established by way of a company to allow for the pension needs of the employees. There's two kinds of company pension. There's a contributory company pension, when the pension contribution is automatically taken out of the employee's salary, before tax also to which the employer can select to match this contribution with their own. There is also the non-contributory company pension, where the company contributes the payment on the pension about the employee's behalf.

Final Salary Explained

Frozen pensions - The last salary company pension scheme supplies the employees a proportion of their salary at the time of retirement. This figure is normally calculated as you sixtieth of the employee's salary multiplied from the number of years they are employed inside the organisation. This company pension has frequently appeared within the press recently as many larger UK firms have closed this business pension to new employees and perhaps have frozen the pension of existing employees. It has occurred since the chance of this type of pension lies with all the employer and never the employee.

Money Purchase Explained

fast release - With all the money purchase company pension, your pay-out sum on retirement is directly as a result of the amount of money the staff member has paid in, just how the investments perform and the annuity-rates. Unlike the last salary company pension, the danger lies with the employee.

Final Salary v. Money Purchase.

Release - Even though headlines keep drawing our focus on the truth that a lot of companies are moving away from the ultimate salary company pension for the money purchase, it would be dangerous to automatically presume that you're best having a final salary scheme as opposed to a money purchase. In fact, though it may be generally accepted how the escape from final salary schemes isn't within the welfare from the employee's future, you will find those who may be best within different scheme anyway. The treatment depends on an individual's circumstances. For example, someone who changes their employer annually may be much better with a money purchase scheme as it may supply them with greater flexibility. It will always be better to discuss your own personal situation with an experienced and unbiased financial adviser in order to determine which company pension is regarded as the suited to your circumstances.