Group pensions

Some employers offer these schemes. They build up a personal fund for each employee which is converted to an income when you retire. The scheme is run by the pension provider that your employer chooses but it is an individual contract between you and the provider. The provider claims basic rate tax relief and adds it to you fund. If you are a higher rate tax payer you claim the additional tax relief via your annual tax return.

The pension fund builds up as you make your contributions and, where made, your employers contributions, investment returns and tax relief. The fund is usually invested in stocks and shares with the aim of growing the fund over the years before you retire. Remember that the value of the fund may go down as well as up!

When you retire, you can take a tax-free lump sum from your fund and use the rest to secure an income – usually in the form of an annuity.

The amount of pension income will depend on how much you pay in, how much the employer pays in, how the investment performs, the charges that the pension provider takes out, how much tax-free lump sum you take, the type of annuity you choose and annuity rates at the time of retirement.