Policy holders contribute to their plan, the money is invested and a fund is built up. The amount of pension payable when the policyholder retires is dependent upon:
* the amount of money paid into the scheme;
* how well the investment funds perform; and
* the 'annuity rate' at the date of retirement. An annuity rate is the factor used to convert the 'pot of money' into a pension.
Currently, the policyholder can retire at any age between 50 and 75. From 6 April 2010, the minimum age will rise from 50 to 55. When the policyholder does retire, they can generally take up to 25% of the value of their fund as a tax-free lump sum. The remainder of the fund must be used to buy an annuity with an insurance company.
