Investment experts typically advise employees who have at least 10 to 15 years left until they retire to have their pension fund invested in a medium-risk fund consisting of stocks and shares. When they get closer to retirement, they would be advised to switch their money to a safer but slower growing fund of government bonds or insurance company with-profit bonds.
To save you having to bother with the investment side of your company pension, many money purchase schemes offer what is known as a lifestyle option. If you choose this option, then your pension fund is automatically moved to different types of investments at particular ages, based on the thinking outlined in the paragraph above. If in doubt, it is worth consulting an independent financial adviser on how to invest your pension.
There are likely to be other benefits linked to your occupation pension scheme. These may include life assurance and/or sickness insurance. Private medical insurance may also be available to pension scheme members, though you do have to pay tax on this benefit.
Occupational pension schemes must allow you to take a proportion of your pension as a lump sum on retirement rather than as income. But the actual proportion allowed depends on when you joined the scheme.
With money purchase schemes this may be up to 25 per cent of the pension fund. A final salary scheme may give you the option of exchanging income for a cash sum at the rate of, for example, $8 of cash for every $1 of pension income you give up.
Your pension scheme is not simply for your personal benefit. Your spouse or other dependants will probably be entitled to a widow’s pension if you die first, and it the scheme incorporates a death-in-service benefits, they will benefit from that if you die before retirement. A spouse’s pension may not be more than two-thirds of the pension you would have received.
But find out from the administrators of your pension scheme exactly who counts as a dependant in your company pension scheme. Older schemes sometimes stipulate that only the named spouse may benefit. But otherwise you may be able to nominate your partner, even if you are not married. Whether a partner of the same sex may benefit depends on the pension scheme.
Some public sector pension schemes will pay benefits to a member’s legal spouse only at the date death while certain private sector schemes will pay out a dependant’s pension to a whole range of people.