If you're thinking about retirement, or just trying to work out how you can survive when it eventually comes, there are many of factors to think about. Not least of these are occupational pension schemes. There are two main types of scheme.

Salary-Related Schemes

(Also known as 'defined-benefit' schemes).

The pension you get is based on the amount of years you have been in the scheme and how much you make (commonly your earnings when you retire or leave the scheme).

You usually pay contributions into the scheme in addition to those of your employer. If you contract out, and get a contracted-out salary-related scheme (COSRS), both you as well as your employer pay lower National Insurance contributions. The difference between this amount and the normal rate is known as the rebate. If a salary-related scheme is going to be able to contract out from the additional State Pension it will have to have passed a test of overall scheme quality, and a certificate will be revealed by the scheme actuary to demonstrate this fact.

Money Purchase Schemes

(Also identified as 'defined contribution' schemes).

This pension is similar to the salary-related scheme but is based upon the overall payments into the fund, as well as just how well this has been invested. On the whole the longer your payments have been invested, the larger the pension you will have when you retire.

Most of these kinds of schemes have the option to buy an 'annuity' from the insurance company, which is an agreement to pay you a pension for life upon retirement. This may be moved to your spouse if you die before they do. As with salary related schemes, it is possible to have a contracted-out money purchase scheme (COMPS).

The main difference in between COMPS and COSRS is that with COMPS the Inland Revenue is going to add an age-related dependent payment to your pension once a calendar year. This addition will be based on your earnings, older individuals will get a higher addition than younger individuals, and this will enable them to develop a pension that reflects the extra State Pension that they have given up.

Tax Relief

Any person paying contributions into an occupational pension is eligible to tax relief on their contributions. For someone on the standard rate of income tax, every 100 pounds placed in your pension will make a rebate of 22 pounds. For the highest level of income tax the same 100 pounds will make a rebate of 40 pounds. (Based on 2003/4 figures). As of 6 April 2003, all occupational pension schemes have had to give members with an illustration of the amount of pension they might receive when they retire each year. It is possible to use this illustration to make sure that you will have sufficient money going in to your pension.