What is a defined (money purchase) scheme?
Unlike final salary, money purchase schemes (often called defined contribution schemes) do not provide any guarantees with regard to the level of your eventual pension income and have no link to your final earnings before retirement. It is fair to say that what you put in is very much linked to what you’ll get out, coupled with the longer you can keep your money invested improving your pension significantly.
Contributions made by both the employee and the employer, together with tax relief on the employee contributions are invested and allowed to grow tax-free. The resultant fund is yours and when you reach retirement, the money that has built up in the pension is used to purchase a pension income.
The value of the pension at retirement is dependent upon how much money has been paid in, how long the money has been invested, how well the capital has grown and the annuity rate available at retirement or the level of unsecured income that can be achieved.
A money purchase pension is simply a long-term savings plan (albeit a very tax efficient one) that is designed to produce a lump sum at retirement. Your savings are then used to purchase pension benefits for which there is now considerable flexibility in how the savings can be used.
The importance of seeking professional advice
Eastcote Wealth Management has years’ experience in this area and can help you to access the pension options available to you and help you to maximise your pension on retirement. Please be careful with your hard-earned pension savings and think very carefully before cashing them in or moving them. If you’re offered a scheme which seems too-good-to-be-true, it probably is. For further information, see www.pensionsadvisoryservice.org.uk/pension-problems/making-a-complaint/common-concerns/pension-scams.
Please do not hesitate to contact us if you would like to discuss your retirement options in more detail. Remember, we offer a free no obligation consultation and will be happy to help if we can. We take a holistic and long-term approach to wealth management, opting to build a lasting relationship with you and provide a tailored solution for all of your investments.
A pension is a long-term investment. The fund value may fluctuate and can down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Occupational pension schemes are regulated by the pensions regulator.