There are two main types of Company Pension schemes:

Final salary (also called 'defined benefit')
With these, you are promised a pension, worked out according to a formula based on your pay and the length of time you have been in the scheme. Your pension is worked out as a fraction - for example, 1/60th - of your pay at or near retirement multiplied by the number of years you work for the company. So if you work there for 30 years you get 30/60ths or half your pay as a pension.

Money purchase (also called 'defined contribution')
These work like savings plans. The amount of pension you get depends on the amount paid in, how well your investment grows, the amount taken off in charges and other factors.

Remember that unless you have a final salary scheme, the amount of company pension you get at the end depends on how well your pension fund performs, charges etc. Some of the investments that the pension fund invests in, like stocks and shares, may increase or decrease in value, which in turn may affect the value of your pension fund.

When you join most Company Pension schemes you 'contract out' (or opt out) of the State Second Pension. This means that any second pension income you get on top of your basic State Pension will come from your Company Pension scheme, not the state.

What does it provide?
Your employer contributes to the scheme on your behalf and generally you get a package of benefits, which often includes:

• A pension payable from the normal retirement age for the scheme (often age 65)
• Annual increases to the pension once you start receiving it
• Option of a tax-free lump sum payable at retirement
• The possibility of retiring earlier, but on a reduced pension
• A pension if you have to retire early because of ill health
• Pensions for your widow or widower and other dependants if you die

Pros and cons of Company Pensions

Pros

• Often provides generous benefits

• If it's a final salary scheme it's often lower risk than taking out a Personal Pension or Stakeholder Pension, as there is a set formula that works out what pension you get, rather than your final pension being dependent on the performance of the pension fund

• If it's a contracted out scheme, both you and your employer will pay lower National Insurance contributions

• You get tax relief on any contributions you make to the scheme. Contributions are made out of your gross pay - before tax is deducted - saving a basic rate tax payer £22 for every £100 contributed and a higher rate taxpayer £40 for every £100 you pay in

Cons

• If you leave a company within two years of joining the pension scheme you will only get back what you paid into the scheme, less tax as a lump sum, although this will change in the future, giving you a pension entitlement from day one of employment

• Final salary schemes are expensive to run, so many are closed, and new joiners to the company can't take part in them

For more information on Company Pensions, click on the links below

• How much can I put in?
• Can I save more for my retirement?
• How much will I get when I retire?
• What happens if I move to another company?
• Where do I find out more?

How much can I put in?
The scheme could be set up in one of two ways:

• The employer may pay all of the contributions, in which case the scheme is known as a non-contributory scheme

• The employer may ask the employees to pay some of the contributions, in which case the scheme is known as a contributory scheme. The maximum that you - as an employee - can put into a contributory pension scheme is 15 per cent of your salary. Your employer must invest something to the scheme, although there is not a set minimum or maximum amount

Can I save more for my retirement?
Yes - if you are not putting the full 15 per cent into the Company Pension, you can also put money into an additional pension. For example, if you are paying six per cent into the Company Pension scheme, then you can pay an additional nine per cent into the top-up scheme.

There are several ways to boost your employer pension:

• Pay into the additional voluntary contribution scheme (AVC). These run alongside the Company Pension scheme and are provided by the employer, although the AVCs cannot be taken to another job and there may be a limited investment choice

• Pay into a free-standing additional voluntary contribution scheme (FSAVC). These are totally separate from the Company Pension schemes. Higher charges than AVCs may make these less attractive, but they are more flexible as they can be taken with you if you change employer

• Take out a Stakeholder Pension. Provided you earn £30,000 or less each year and are not a controlling director of your company, you can pay in £3,600 a year (including tax relief) into a Stakeholder Pension. The charges are low, and these plans are flexible, so you can take them with you when you move jobs, take your pension at a different time to your employer's scheme etc

How much will I get when I retire?
How much you get will depend on the type of scheme you have.

For a final-salary scheme
The maximum amount of pension you could get is based on two things:

1. Your salary at or near the time you retire
and
2. How long you have been in the company pension scheme.

Generally to get the maximum two-thirds of your final salary, you need to have worked for your employer for 40 years, although few people manage that today. When you retire, you can choose whether to take a tax-free cash lump sum of up to one-and-a-half times your income at your retirement date. However, this will result in a lower pension.

For a money purchase/stakeholder scheme

Your pension depends on the following:

• How much you and your employer have paid in

• How well this money has been invested

• The charges deducted

• Annuity rates at the time you retire (an annuity must be bought with at least 75 per cent of your pension fund to provide you with an income for life)

• How much you take as a lump sum. You can take up to 25 per cent of your fund as a tax-free lump sum, however this will result in a lower pension

Money purchase and stakeholder schemes are felt to be riskier than final salary schemes. However, final salary schemes are expensive to run, so more and more employers are closing them to new members or shutting them down completely.

What happens if I move to another company?
If you have worked for the company for less than two years, you will get back what you paid into the scheme, less tax as a lump sum. If you have worked for the company for more than two years, you have two options:

1. You can leave your pension fund with your last employer and they will pay you a reduced pension when you retire. With a final salary scheme this will be based on the number of years you've worked for the company and your salary when you left. With a money purchase pension your money will continue to be invested.

2. You can take an amount - known as a transfer value - and pay it into your next employer's pension scheme or a stakeholder pension.

Pension transfers are complex and you should seek advice before taking any action. Investment advisers offering advice on transfers must have a specialist qualification. Speak to an Independent Financial Adviser or a Pensions Specialist. Look in the Yellow Pages (www.yell.co.uk) for details of your local ones. Or visit www.unbiased.co.uk

Where do I find out more?
If you have any questions you can contact the pension scheme trustees or the company running the pension (in the case of a Stakeholder or Personal Pension). Your company human resources department can provide you with the contact details.