Occupational pension

Occupational pension schemes are provided by your employer to help you save money towards your retirement. The employee makes regular financial contributions into a "pot" over a period of time. This money is looked after by an appointed trustee and managed by an investment company and over time will gain interest.

Contributions are usually paid by the employee and normally the employer will also pay a contribution too. This sum is taken from the money that would go into the employee's salary. But because it's taken out before being put into their pay packet, they do not have to pay tax on it. With basic level tax at 22% that means for every £78 contributed, the pension investment benefit will be £100.

The most common kind of occupational pension scheme provided these days is Money Purchase, which are also known as defined contribution (DC) schemes. Contributions, both from you and your employer, are invested in various funds and other assets and, when you retire, the amount you receive is calculated by how much has been paid in and how much the investment has grown.

Upon retirement you can choose to take some of the money as a tax-free lump sum. The remainder will either be used to pay you your pension or you can buy an annuity, which will provide you with a regular income.

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