Pension Contributions For Both Company And Personal Pensions

Pension contributions into company and personal pensions – Pensionfinder

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    Pension contributions into company and personal pensions

    The money you (and/or your employer) put towards your retirement in a pensions scheme is called a pension contribution. Depending on the type of pension scheme, you may be able to contribute regular and/or lump sum payments.

    Contributions to occupational schemes

    Generally, as a member of an occupational pension scheme you will be making regular monthly contributions which have been deducted from your pay packet. Your employer may also be making pension contributions into your pension pot on your behalf. Some lucky workers are members of non-funded company schemes which means that they don’t make pensions contributions, just their employer does. For more information on your company pension scheme, including employer’s contributions, contact your employer or HR department.

    If you want to boost your pension pot (and income in retirement) you could consider making additional voluntary contributions (AVCs) to your company scheme or starting a free-standing additional voluntary contribution (FSAVC) scheme.

    From October 2017, the Government is introducing its reforms for occupational pensions, which may affect both employers and employees.

    Personal pension contributions

    Those with a personal pension will usually be making regular monthly contributions to their pension plan, although many plans will also let you make lump sum contributions – or both.

    Depending on your circumstances, for example if you are a member of a Group Personal Pension, your employer may also being making pension contributions into your personal pension plan.

    The tax advantages of pension contributions

    To help encourage employees and individuals to save for their retirement the Government gives tax relief at the highest rate(s) paid on pension contributions (within the Annual Allowance limit). In addition, the funds in which your contributions are invested are generally free of UK taxes. This makes them a very tax efficient way to save and invest for retirement.

    A basic rate taxpayer receives 20% tax relief on pension contributions and its 40% for higher rate taxpayers. This means that for every £80 that a basic-rate taxpayer contributes to their pension scheme, the Government pays in an additional £20 – giving them a total contribution of £100.

    From April 2011 there will be a new addition rate of tax of 50% for those earning £150,000 and the amount of tax relief allowed on pension contributions for these individual will be reduced. There are further restrictions currently in place to stop individuals from trying to beat the 2011 deadline and making extra large pension contributions this year.

    The Government also uses tax relief to encourage employers to contribute to their employees’ pensions. If you are an employer and want to know more about the tax advantages of making employee contributions ask your financial advisor.

    Contribution limits

    Assuming you are younger than 75, the most you can contribute in one year to your pension savings and receive tax relief is 100% of your earnings or £3,600 – whichever is the greater. However, this amount is capped by the Annual Allowance set by the Government.

    From April 2016 the Annual Allowance will be £255,000. The Annual Allowance will include your and any employer’s contributions.

    You can contribute more than the Annual Allowance limit to your pension scheme, although you will pay 40% tax on any contributions made that are above the limit. However, the funds in which your contributions are invested are generally free of UK taxes, so investing in pensions remain a tax efficient investment for your retirement.