As a result, many people are put off joining their company scheme and some never join at all, often losing out on valuable retirement benefits.

Company pensions are also known as occupational pension schemes.

Most larger companies and many small to medium sized companies run their own pension scheme. In most cases, money is automatically deducted from the employee's salary and placed into a pension fund.

These schemes have three major advantages over most personal private pensions.

Firstly, most employers usually make contributions to the scheme in addition to the contribution you are making, which obviously increases the sum paid into your pension plan. Secondly, the charges made by the pension company or fund manager for running the scheme are usually considerably lower than those for private pensions.

Finally, most company schemes include death in service benefits or built-in life insurance for your spouse or family if you die while an employee of the company.

As a result, company pension schemes can be a very attractive proposition and a highly desirable staff benefit.

In my opinion, there are few situations where it would not be a good idea to join, particularly if your employer is also funding it.

In almost all cases anyone who has access to a company scheme should join it, rather than taking out a personal pension.

However, not all companies allow new staff members to join the pension scheme from day one and there is often a qualification period of several months before you may be eligible to join the scheme.

Your personnel department should be able to tell you when you can join and you should apply as soon as you become eligible.

There are two main types of company pension schemes: money-purchase and final-salary.

Money-purchase: These are also known as defined contribution schemes.

With these you know how much money you are putting in to the pot, but what you get out of it when you retire depends on how well the fund managers have invested your money over the years and on economic conditions when you retire.

On retirement, the money would normally be used to purchase an annuity which pays an income until you die. You do not have to accept the annuity offered by the company running your scheme – you have the right to choose the open market option. In other words, you can ask a financial adviser to shop around for the best deal in the annuity marketplace.

Final salary: These are also known as defined benefit schemes. With this type of scheme, the amount you receive on retirement depends on your salary when you leave the company or retire and the length of time you have been a member of the scheme.

You accrue benefits based on a combination of both, usually at the rate of one-sixtieth of your final salary multiplied by the number of years of scheme membership (the accrual rate). So, someone who is a scheme member for 40 years would retire on 40 sixtieths or two-thirds of their final salary.

The security you get in knowing that your pension will depend on your final earnings, not on stock market conditions over your working life, means these are seen as the very best pensions around.

Unfortunately, due to the cost of running them, they are becoming rarer, and many companies are changing their plans from final-salary to money-purchase schemes.

Nowadays, a number of employers offer another alternative to the final salary or money purchase occupation scheme.

Group personal pension plans or GPPs are becoming increasingly common. As the name implies, these schemes are a collection of individual personal pension plans grouped together under a single 'master' contract with one pension provider.

GPPs are similar to personal pensions and are covered by the rules for personal pension plans not occupational schemes. With a GPP, you may also benefit from lower fees than those for individual personal plans, which means that more of your money is invested in the pension.

With this type of pension, although your employer normally contributes to the scheme in addition to your payments, the fund in your plan actually belongs to you – not the company. This means a GPP can be a good option if you change jobs, as the plan can be taken with you to another employer.

Whatever type of pension plan you are offered by your employer, grab it with both hands. There is no better pension than one funded by someone else!



Nick Plumb is an Independent Financial Adviser.

Send your questions to him at Bright Financial Planning Ltd, 58 Station Road, Sudbury, Suffolk, CO10 2SP, email them to nickplumb@aol.com or telephone Nick on 01449 675674.

Nick's answers to reader questions in this column are provided only as a general guide and do not constitute personal financial advice.

Any readers who require specific financial advice on their own position should contact Nick for a complimentary consultation.