Company Pension

By: EconomyWatch   Date: 30 September 2009

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The retirement of a working individual is inevitable. Therefore, he/she must be prepared to tackle any financial or health related eventuality that may occur post retirement. The most popular way to manage life after retirement is to use company pensions. In a company or occupational pension, both the employer and the employee contribute to a fund, which is accumulated tax free during the saving period. A company pension plan can also be non contributory.

The amount paid to the employee on his/her retirement will depend on the type of plan, the monetary contributions and the number of years in service. 

Types of Company Pension 

Company pension schemes can be of two types:

Salary related scheme: In a salary related scheme, the final amount is based on the individual’s salary and the duration of the scheme.

Money purchase scheme: In this scheme, the money received is based on the amount invested and the manner of investment.

Benefits of a Company Pension

·         Tax relief: One gets tax relief on company pension contributions. For a particular rate of income tax, the contribution is reduced by the tax margin for every transaction one makes.

·         Employer contributions: Contributions are made by the employer.

·         Extra benefits: Company pension schemes offer benefits like life insurance and death benefits for dependents.

Tips to join a Company Pension scheme

·         Before one joins a company pension scheme, one should check how much he/she would have to pay and what contribution the employer is going to make.

·         A company pension scheme is related to the job. So if one leaves the job, he/she needs to check what will happen to the pension. One may be able to transfer the pension to another company pension scheme. It depends on whether or not the new employer will accept the transfer.

·         If one decides to keep the benefits in the previous employer’s occupational pension scheme, one can still join another occupational pension scheme.

·         No financial products, including pensions, no matter how appealing, are entirely risk-free. For example, an employer may go out of business, or decide to change, or close, the company pension scheme for another reason. This would mean you gets less than what was initially expected.

·         The amount of pension one gets may depend on how well the scheme’s investments have performed by the time you retire, based on market conditions and inflation rates.

It is always advisable to do a little research before embarking on any pension scheme. One should select a suitable pension scheme judiciously and make sure any risk related component is kept to a minimum.


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