Executive Pensions

2. Making the Choice

In deciding which form of pension provision is right for you, you need to consider several factors.

2.1 Will you and your business be contributing the maximum possible to your pension scheme?

• The limits on the amounts qualifying for tax relief have been greatly increased (see 3 and 4).
• Company contributions tend to be higher for 'final salary' company schemes and executive pension plans.

2.2 Will you be making the most of tax relief on approved schemes?

• Your personal contributions will qualify for tax relief at your top rate. For a top rate taxpayer, that effectively means £100 invested costs you £60.
• If you are paying less than the maximum permitted contributions, either increase these, or consider taking any pay increase in pension contributions rather than cash.

2.3 How important is security to you?

• With company final salary schemes, your pension will be a proportion of final salary, depending on the length of your service in the business. The maximum pensionused to be limited to 2/3 final salary, up to the earnings limit of £105,600. Although the change in the tax regime means payments could in theory go higher, this is unlikely in the near future.
• The same overall limits used to apply to company money purchase schemes. For these, the amount you get back is directly related to how much is paid in, how the investments perform, how high the charges are and interest rates when you convert your fund into a pension.

2.4 Do you need ancillary benefits?

• Final salary company pension schemes usually offer better benefits, which may include life assurance, a dependant's pension and provision for early retirement.
• There may also be a built-in element of inflation proofing.

2.5 Do you have longer-term plans to exit the business?

• If so, you can arrange to take your pension fund with you, but you may lose out financially.
• Personal pension plans enable you to control your own fund to a greater extent. There is no required length of saving, though the longer you save, the better your pension is likely to be.
• Earlier requirements for a given length of saving, to qualify for maximum benefits, have been swept aside as a result of the change in the tax regime.
• But there are still restrictions on how soon benefits can be taken - not before age 50 now, and that will rise to age 55 in 2010.