A Guide: Pensions

Money Purchase Schemes

These schemes are sometimes called 'defined contribution schemes'. They do not provide a pension based on your salary or years of service. Instead, the employer (and sometimes the employee) builds up a pension fund by making regular payments, typically a percentage of your salary, into a pension fund. The employer must always contribute to an occupational pension scheme and with effect from 25 June 2009 no carry back of contributions is allowed.

Although it is the employer who sponsors the scheme, trustees are usually appointed to run it. Often you may be able to top up the pension fund from your own resources. These are called “Additional Voluntary Contributions” or AVCs.

When you retire, the scheme administrator will often buy an ‘annuity’ for you in order to convert the fund into an income for your retirement. This used to be a legal requirement in Gibraltar (see below for further details). You may therefore also have the option of purchasing an annuity yourself or considering other options.

It is recommended that you get an annual statement showing how much pension income you might get based on the value of your pension fund today, taking account of:

  • future payments into your plan;
  • how the plan might grow; and
  • future inflation and pension income from your fund when you retire.

These statements only provide an illustration of potential returns, which are not guaranteed.