Introduced in 2001, this was the government’s way to reintroduce pensions back to the public after the mis-selling scandals of the previous decades.

Its concept was to be easy to understand and more importantly the low capped fees of one per cent, it was designed to satisfy the requirements of the self employed, low earners and those not working but receiving benefits as income. It even featured the ability to stop and start the payments into it as and when it was suitable for the client which made it far more flexible than any previously seen arrangements.

In reality it was those on higher earnings that benefited and the marketing from the Pension Providers was restricted due to the low earnings they expected due to the capped charges.

This one percent capped threshold running cost charge will now be raised to 1.5 percent from April 2005 (though not all financial players are expected to exercise this right).

By far the most popular vehicle to invest in a pension apart from Company Schemes, these have proved to be popular. With premiums paid net of income tax, pension policyholders could feel the immediate effect of investing. Totally portable from the clients point of view, they could and would move jobs and be able to take this pension with them and continue contributions as long as they were earning above the lower earnings level.

Also known as occupational schemes, works pension or superannuation, these are private schemes run by employers for their employees. Often the employer would make a contribution to the employees scheme and this often proves to be more beneficial than “opting out” and taking a personal pension. The disadvantage obviously is that a move in employer meant that the pension became frozen or paid up. Not all cases required the employee to make contributions so that made the proposition even more attractive.

Company pensions are run by its trustees and often provides life insurance as well as pension benefits. Occupational pensions are governed by the Occupational Pensions Regulatory Authority (OPRA) and must comply with certain regulations.

Occupational pensions are paid on top of any basic State Pension. These pension schemes work under a different set of rules to a personal pension. The investment limits are different and are related to your salary. The maximum benefits under an occupational pension scheme are subject to Inland Revenue limits.

There are different kinds of company pension schemes. Some may affect any additional State Pension you may have earned under the State Second Pension (formerly SERPS). For some schemes, the amount that you will get usually depends on how long you have been a member of your pension scheme and your earnings on retirement. For others, the amount you get will depend upon the amount of money paid into it and how well it has been invested.

Additional Voluntary Contributions

For those in Company/Occupational Schemes, if the total amount being contributed into your pension fund is below a certain level then there is the opportunity to “top-up”. For instance as a member of an occupational pension scheme, you are adding to your pension pot but does it amount to the full 15% of your salary permitted to you by law?

If not, there is a way to meet this target - additional voluntary contributions or AVC’s are the cost and tax effective answer to help you make the most of your retirement.

There are two types of AVC:

In-house AVC: offered to you by your employer. Contributions can be deducted weekly or monthly from salary before tax. You can own as many AVCs as your employer offers, however, contributions will be stop if you change your employer.

Free Standing AVC (FSAVC): independent of your employer and offered by organisations such as building societies or life assurance companies. An ideal option for job hoppers since the AVC provider will remain constant regardless of changes in employment. In this case the tax deducted from your gross contributions will be reclaimed on your behalf the provider. You can have an FSAVC with one provider each year.

The basic State pension – most people will be entitled to this and the amount you receive depends on the amount of National Insurance you have paid. So if you have breaks in your career, you may not get the full entitlement. By 2020, this will be payable from the age of 65 for everyone (prior to the 1995 Pensions Act, women could receive the pension from age 60 however women born after 6 April 1955 will receive it from age 65).

The additional State pension (or S2P or SERPS) will apply if you are or have been an employee at any stage and have therefore paid Employees Class 1 National Insurance Contributions. If you have always been self-employed, you will not qualify for this benefit.

It is possible to opt out of the additional State pension – this is known as contracting out – in this case, a rebate of your National Insurance Contributions will be invested in your pension scheme. See the links below for details of the types of scheme that this can be arranged through. You can choose to contract back into the State scheme in the future if you wish. Whether you would benefit from contracting out of the State scheme depends on your individual circumstances (such as your age, sex, earnings and the type of pension scheme, if any, you have). It is always a good idea to seek professional advice on this issue.

Executive Pension Plans

An executive pension scheme provides confidentiality for company directors as it enables them to keep their pension arrangements separate from the main company pension scheme.

This type of arrangement also often provides greater investment choices than many other types of pension.

However, probably the most important benefit is tax relief. It is a potent mechanism placed in the hands of companies and employees to save on corporation tax, income and capital gains tax and National Insurance.

Executive pensions are usually set up on a money purchase basis. The benefits depend on the level of contributions made and the performance of the pension fund either managed by the pension provider or one that is externally managed and approved by the pension provider.

This type of plan can also be useful for a professional who perhaps employs their husband or wife and their earnings remain below the level for national insurance. This income can be pensioned and the pension scheme can be treated at as business expense.