Subject: Re: Pension advice  -  buying additional years
From: "Andy Pandy" 
Date: Sat, 21 Jul 2007 11:24:29 +0100
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Newsgroups: uk.finance
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"Ronald Raygun"  wrote in message
news:OX7oi.1076$By5.1063@text.news.blueyonder.co.uk...
> >> With a defined benefit scheme, though, the pension will simply be
> >> proportional to final salary and number of years service, and not
> >> directly to the size of the pot.  Therefore tax relief has no
direct
> >> effect.
> >
> > Eh?  If there's an option in the DB scheme to buy, say, an extra
> > year's service for £5000, then as far as tax goes the same applies
as
> > to DC schemes. You get tax relief on the contribution and pay tax
> > (except on any lump sum) on the extra pension you get as a result.
>
> With a DB scheme there is a less direct link between the amount of
> money you sacrifice from income and the increase in your pension
> than there is with a pension-fund/annuity scheme,

No there isn't, it's more direct. In a DB scheme you would contribute
(sacrifice) a defined amount to get a defined percentage of final
salary in retirement as extra pension. One unknown - final salary.

In a DC/personal pension type fund you'd contribute a defined amount
to get a bigger final pension pot and so a bigger annuity. Two
unknowns - fund performance till retirement and annuity rates.

> so you can't as
> easily see what the tax effect will be.

In both cases the tax effect is identical - tax relief on
contributions and tax paid on pension (except for the lump sum).

--
Andy