Corporate pensions provide the company with an ideal way of offering employees pension benefits while still maintaining full control.

They can be offered through any one of the following schemes and each one is designed to match a different set of criteria required by the company. These are:

• Final Salary
• Money Purchase Contracted In
• Money Purchase Contracted out
• Executive Pension Plan - Ideal for Directors and Key Staff

Pension Planning is the most tax efficient way of accumulating capital for retirement. The Inland Revenue gives tax relief on the premiums, the fund is allowed to grow tax-free and a percentage of the fund can be taken as tax-free cash.

In the past the net relevant earnings of the member, along with other factors such as length of service and value of existing pension plans determined the level of contributions.

However as from April 2006 you can save as much as you want into any pension scheme. The rules for claiming tax relief on your pension contributions are also more flexible, though tax charges will apply if you go above certain new allowances.

Tax relief on pension contributions

• each year you’ll be able to get tax relief on your pension contributions up to 100 per cent of your earnings subject to an ‘annual allowance’ above which tax will be charged
• if you have little or no earnings you will still get tax relief up to a maximum annual contribution of £3,600

Contributions above the Annual allowance

• the annual allowance for the tax year 2007-08 will be £225,000 (both employee and employer) and will rise each year until it reaches £255,000 in 2010; thereafter the amount will be reviewed every five years
• if the annual allowance is exceeded you’ll need to declare the extra pension savings and pay the annual allowance charge through Self Assessment
• the annual allowance charge will not apply in the year you take all your benefits

‘Lifetime Allowance’

• from April 2006, you will have a ‘lifetime allowance’ against which the total value of the benefits built up in your pension fund (including investment growth) will be tested
• the value of any pensions savings above the lifetime allowance will be subject to a ‘lifetime allowance charge’
• the lifetime allowance for the tax year 2007-08 will be £1.6m and will rise each year until it reaches £1.8m in 2010; thereafter it will be reviewed every five years
• if you take benefits above your lifetime allowance as a pension, the lifetime allowance charge on the excess amount will be 25 per cent
• if you take benefits above your lifetime allowance as a lump sum, the lifetime allowance charge on the excess amount will be 55 per cent
• the lifetime allowance ‘test’ will take place when you start drawing your benefits or when you reach age 75

For further information: