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sir i do not understand the definition of money purchase arrangements in the bpp study text could you please explain it
The important issue is understanding the differences for tax between occupational pension scheme contributions and personal pension scheme contributions – see the OT notes.
Occupational pension schemes may be either “salary related” or more usually “money purchase” and all personal pension schemes are money purchase.
Money purchase simply means that contributions are made into a scheme to build up a pension fund which is then used when the taxpayer retires to buy an annuity which becomes the pension of the taxpayer concerned. The taxpayer is permitted to take 25% of the pension fund value on retirement as a tax free lump sum and the remainder may be taken out on a “draw down” basis each tax year and will then be treated as taxable income.
A salary related or defined benefit scheme specifies that the pension will be a certain % of the employee’s final salary
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