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UK Pension Provision falls into three major divisions:
STATE PENSIONS The State provides basic pension provision to prevent poverty in old age. Men over 65 and Women over 60 are entitled to claim. From 2010, the state pension age for women will start to rise from 60, eventually reaching 65 by 2020. {Link without Title} Basic State Pension (BSP) Qualification for Basic State Pension is based on National Insurance contribution history. For someone with the full number of qualifying years, it is payable at a flat rate of £84.25 per week (2006/07). A lower amount of money is payable for someone with fewer qualifying years. Dependents additions are also payable - where the dependent does not qualify for State Pension in their own right or where they have not yet reached State Pension Age . An Age Addition was introduced in 1971 with 25p per week added to the State Pension for people aged 80 or over. It remains at this level. You can claim basic State Pension from State Pension age: currently 65 for men and 60 for women (rising to 65 by 2020). You can get a basic State Pension by building up enough 'qualifying years'. You don't have to claim your State Pension as soon as you reach State Pension age. You can claim it later and get a higher weekly amount or take the option of a one-off taxable lump-sum payment plus your normal State Pension instead. http://www.ruleworks.co.uk/cgi-bin/TUaz.exe?Guide=Pensions&XL=B&t=Pensions%20Knowledgebase%20and%20Glossary Additional Pension This has been available only to employees paying National Insurance and certain exempted groups (not including the self employed) Graduated Pension or ''Graduated Retirement Benefit'' From 6th April 1961 until 5th April 1975. Qualification based on payment of a number of fixed National Insurance payments ('stamps') The system of National Insurance payments used was not the one in use today. State Earnings-Related Pension Scheme (SERPS) From 6th April 1978 to 5th April 2002. Qualification based on ''band earnings'' above a Lower Earnings Limit (LEL) in each year. The LEL (£84 per week /£4368 pa in 2006/07) is usually set at the same level as the BSP (£84.25) and increases when it does. Band earnings lie between the LEL and an Upper Earnings Limit (UEL) at which National Insurance contributions cease to be payable by the employee (£645 per week/£2,795 per month in 2006/07). The UEL is also adjusted annually. State Second Pension (S2P) From 6th April 2002 onwards. Qualification based on earnings at, or above, the LEL, but no band earning calculation is made until earnings reach a higher base (£12,500 pa in 2006/07) called the Lower Earnings Threshold (LET). Earnings below the LET (but above the LEL) are credited up to the LET. Pension Credit Reforms introduced by Gordon Brown , Chancellor Of The Exchequer , designed to lift a large number of the poorest retired people out of poverty, introduced the Minimum Income Guarantee in 1997, replacing it in 2003 with the Pension Credit. Pension Credit has two elements. Firstly the Guaranteed Credit which applies if the income of the claimant, and partner, is below a certain level. This starts from 60 so if a younger partner is working then that income is taken into account, along with any savings over £6000. In effect this is Income Support for the over 60's. When the claimant, or partner, reaches 65 then the second element, Savings Credit, also applies. Broadly, state or personal pensions and savings over £6000 can attract extra money as a 'reward' for providing for retirement. It is possible for a claimant on a low state pension with savings over £16000 to receive Savings Credit as well as a claimant with no savings but with significant personal pensions. It is very important that anyone in receipt of the Guaranteed Credit part of Pension Credit applies for Council Tax Benefit if they have not already done so, incidentally the single person discount is not affected by this, and also claim Housing Benefit if they pay rent. The amount of Pension Credit can also be increased if the claimant and/or partner are disabled. The complexity of Pension Credit has been criticized as well as the amount at which the Guaranteed Credit is set. CONCEPTS Continuation of earnings. Tax advantages Growth free from capital gains tax, corporation tax and income tax. Approval To gain the tax advantages the scheme must seek approval from the Her Majesty's Revenue And Customs . Compulsory Purchase Annuities An annuity purchased with pension scheme proceeds taxed as earned income. OCCUPATIONAL (TRUST BASED) PENSION SCHEMES (UK) There are two main types:
DC schemes fall into the following sub types:
Prior to April 2006, the following 'unapproved' (i.e. without the generous tax treatment) retirement arrangements could be provided by companies for staff who had their 'approved' pension provision maximised:
Since April 2006, pension contribution rules have generally been much more flexible, rendering these two types of scheme largely obsolete (although some older arrangements may still exist), INDIVIDUAL PENSIONS Types
REFERENCES SEE ALSO
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