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This briefing paper is a short guide to the recent developments affecting pensions and explains how the range of pension arrangements work and interact.
Your pension income after retirement is likely to come from a number of different sources according to whether you are a NHS employee (and whether you are a member of the NHS Superannuation Scheme), self-employed, work for a private practice, charity or independent organisation. Some of those sources could include the state scheme, occupational schemes, stakeholder and/or personal pensions. It will also depend on a whole range of factors such as your age, earnings (both current and future), whether you have or expect to have dependants etc.
To plan effectively for retirement, it is important to have an idea of what your retirement income is likely to be and, what, if any action could be taken to increase it. It is also vital to know what your rights are in relation to these different sources of pension.
Whatever your employment status, when you reach state retirement age (currently 65 for a man, 60 for a woman) you will receive the full basic state pension. You may also be entitled to some additional pension or state earnings-related pension known as SERPS (this will be replaced by a new State Second Pension from 2002).
You are entitled to the full amount of state pension if you have paid the required National Insurance contributions over your working life; working life is normally 49 years for a man and currently 44 for a woman (calculated from age 16 to state pension age). The full rate of basic state pension is currently £72.50 week (£3,770 a year) for the year April 2001 to March 2002.
The level of pension depends on how many qualifying years you have, i.e. years when your earnings have been at least 52 times the lower earnings limit for that year (the lower earnings limit is the level of weekly pay from which you are credited with National Insurance contributions).
You can check your record of contributions with your local social security office. If you find that you will fall short of a full contributions record on retirement, you can opt to pay voluntary National Insurance contributions (£6.75 per week for the year 2001 - 2002) to get more qualifying years.
For further information you can obtain the leaflet CAO7 National Insurance - unpaid and late paid contributions from your social security office.
If you are receiving invalid care allowance, incapacity benefit or severe disablement allowance, you will be credited with earnings for this period to ensure that no basic state pension entitlement is lost. Men aged between 60 and 65 are automatically credited with earnings unless they are registered as self-employed or are abroad for 182 days. However, men still in work between these ages continue to pay the normal National Insurance contributions.
If you spend long periods out of work because of domestic commitments, HRP will help maintain your basic pension entitlement. It covers any tax year from April 1978 and effectively reduces the number of qualifying years that are needed to get a full basic state pension. It automatically takes effect if:
You have to apply for HRP if:
To apply, complete the form CF411 - How to protect your state retirement pension if you are looking after someone at home - available from your local social security office.
To find out what your basic state pension and SERPS will be, you need to complete the form BR19 (available from your local social security office), returning it to: Retirement Pension Forecast and Advice Unit in Newcastle. Alternatively, you can complete the form online at http://www.dss.gov.uk
If you do not have enough National Insurance contributions to claim a pension in your own right, then as a wife you can claim a weekly pension on your husband's National Insurance record, once he has reached state pension age. Currently this is worth £40.40 a week so the pension for a married couple is £112.90 a week (£5,870.80 a year for 2001 - 2002). If your husband's National Insurance record means that he is not entitled to the full rate then your record can be taken into account to bring it up to the maximum.
The pension age for women is being increased to 65 and this will apply to all women born on or after 6 March 1955. For women born before 6 April 1950, the state pension age remains 60. Women born between 6 April 1950 and 5 March 1955 inclusive will be covered by transitional arrangements. Therefore, women born during 1952 will, depending on their date of birth, have a state pension age of somewhere between 61 years and nine months and 62 years and nine months.
The DSS leaflet Pensions for Women - Your Guide (PM6) provides more details on this.
If your workplace does not offer an occupational pension scheme then you will either be:
Occupational pension schemes are usually contracted out of SERPS. However, a small number of schemes are contracted in and in these cases you can contract out on an individual basis if you so wish.
SERPS is based on an average of earnings between the lower and upper earnings limit - surplus earnings. Each year of your own earnings is re-valued to take account of increases in national average earnings.
SERPS entitlement is being gradually reduced from a maximum of 25% of surplus earnings (for those retiring before 6 April 1999) to 20% for those retiring from 2009-10 onwards, as the government plans to replace SERPS with the State Second Pension from 2002.
The calculations are set out in more detail in the Benefits Agency booklet NP46, A Guide to Retirement Pensions. You can also get a forecast of your SERPS pension as with the basic state pension.
If your husband or wife dies, you may be entitled to inherit some SERPS entitlement.
If your spouse is due to reach state pension age before 5 October 2002, then you will be able to claim all their SERPS entitlement on their death. This percentage falls depending on your spouse's age.
E.g. if your husband was born between 6 October 1943 and 5 October 1945, then you will be able to claim 60% of his SERPS entitlement.
This will replace SERPS from 2002. It is intended to provide a pension that is better than SERPS for those on the lowest earnings (those currently earning around £10,000).
It will also provide extra benefits if you are a carer or have a long-term illness or disability. It will be possible to contract out of the SSP as it is currently possible to contract out of SERPS.
You can contract out of SERPS either through an occupational pension scheme, stakeholder or personal pension. If you are contracted out through your occupational scheme, then both you and your employer pay lower National Insurance contributions.
If you contract out through a stakeholder or personal pension then you pay normal National Insurance contributions but then a rebate of 1.6% is paid into your pension by the Inland Revenue. The rebate increases according to age; it starts at 3.8% of earnings at 16 and rises to 9% for those aged 50 and over.
Occupational schemes contract out if they meet the requirements of what is called a reference scheme test. This is determined by the scheme's actuary. If he thinks that more than 10% of the scheme members would not get benefits to match the legal minimum, the scheme could not contract out.
The reference scheme is one which provides a pension at retirement at 65 based on 1/80th of earnings for each year of service and a spouse's pension worth half the member's pension. Earnings are defined as 90% of earnings between the lower and upper earnings limit.
Money-purchase schemes, whether occupational, stakeholder or personal pensions, contract out on the basis of minimum contributions. The contracting-out rebate is paid into these schemes in the expectation that it is likely to provide a pension at retirement at least as good as SERPS. However, as with all money purchase schemes, there are no guarantees.
If you do contract out of SERPS, it is possible to contract back in again at any time. You would need to take financial advice on what is the best option for you.
This was the forerunner to SERPS and if you were employed between 1961 and 1975, then you may have some graduated pension entitlement. The forecast showing your basic state pension and SERPS pension will also indicate how much graduated retirement benefit you are likely to receive.
If you rely mainly on the basic state pension for your income, you should be able to claim means-tested payments in the form of the Minimum Income Guarantee (MIG). This is the new name for Income Support.
If you are entitled to the full MIG top-up then you will receive £19.65 on top of your £72.50 basic state pension.
For further information you can ring freephone 0800 028 1111.
Pension credits will come into effect in 2003. This will mean that if you have some savings you will not lose out from the means-tested MIG. The credit will guarantee that from 2003 a single pensioner will have an income of at least £100 a week and will receive an additional cash credit for every pound saved on top of that.
Other benefits available from April 2001 include Bereavement Payment (£2,000); Widowed Parent's Allowance (£72.50/week for 2001-2002) and an age-related Bereavement Allowance (up to £72.50/week). Further information may be obtained from the DSS's New Bereavement Benefits leaflet (BERE).
Occupational schemes have two main forms - final salary (defined benefit) or money purchase (defined contribution). If you work for a NHS employer you will be eligible to join the NHS Superannuation Scheme which is a final salary scheme. This is covered in more detail in Factsheet No.7 'Superannuation' available from the Industrial Relations Department. If you work for a charity or an independent organisation you may be eligible to join an occupational scheme or group personal pension plan within your workplace. You will need to contact your Personnel Department for further information.
A final salary scheme pays a pension based on salary at or near retirement with usually a 1/60th of pay for every year of service or 1/80th of pay for every year formula. E.g. someone retiring after 15 years on a salary of £20,000 would get 15/60 x £20,000 or £5,000 as an annual pension.
The exact amount of pension will depend on how the scheme defines pensionable pay and final pensionable pay.
Pensionable pay will often exclude fluctuating earnings such as bonuses and overtime. The scheme may also be integrated with the state scheme and so there may be a deduction equivalent to the lower earnings limit or basic state pension to arrive at pensionable pay.
There are several different definitions of final pensionable pay; some of the more common definitions include:
On retirement you can normally choose whether to convert part of your pension entitlement into a lump sum. The Inland Revenue rules in this area are complicated but a general rule is that they allow for a maximum lump sum of 3/80th of pensionable pay for each year of service up to a maximum of 1.5 times pay.
E.g. someone on £20,000 salary retiring after 20 years in a scheme would get a maximum lump sum of £15,000 (20/80 x £20,000 = £5,000; £5000 x 3 = £15,000).
The rate at which pension is converted into a lump sum, known as the commutation factor, can vary from scheme to scheme and may vary from time to time as schemes adjust them to take account of changing interest rates.
A pension scheme's "normal retirement age" determines when a member will be entitled to a full pension. The Inland Revenue requires schemes to set retirement age between the ages of 50 and 75. Most schemes have a normal retirement age for men and women of 65, although a significant number have a retirement age of 60 or allow retirement on a full pension from that age. If you joined the NHS Superannuation Scheme before 6.3.95 then you are entitled to retire from age 55. Further information is available in the booklet 'Early Retirement' available the NHS Pension Agency. However, it is important to remember that if you retire any earlier than the normal retirement age, you are likely to face a reduction in benefits.
As this is usually subject to separate rules you need to look at your individual scheme carefully. Some schemes enhance pensions in the case of ill-health by crediting members with all or some of the service they would have completed had they continued to work to normal retirement age. However it is usually subject to independent medical assessment and any decision being at the trustees' discretion. If you are a member of the NHS Superannuation Scheme, the regulations for ill-health retirement are covered in the Factsheet No. 19 'Industrial Injuries', available from the Industrial Relations Department or in the leaflet 'Early Retirement' available from the NHS Pension Agency.
Most schemes provide benefits in the event of the death of a current member or deferred or current pensioner. These normally involve a lump sum and a pension payable to the surviving spouse and/or dependent children. The lump sum is usually a multiple of pay, with the spouse's pension usually half the member's entitlement although schemes are increasingly providing a two-thirds pension. Again you need to look at your own individual scheme for further details.
All pension entitlement, built up in occupational schemes since 6 April 1997, get limited protection against inflation, i.e. will be increased in line with rising prices up to 5%. Those members whose schemes were already doing this in practice will have their service before 6 April 1997 protected.
Recent surveys undertaken by the National Association of Pension Funds indicate that employee contributions are normally around 4.5 - 5%. As with stakeholder and personal pensions, employees get tax relief on their contributions - 22% if you pay the basic rate of tax. This means for £78 in your contributions £100 is paid into the scheme.
Employer contributions into final salary schemes vary considerably and are usually based on the balance of cost. The level of contributions needed to cover the scheme's liabilities are worked out by the scheme actuary and the employer will pay whatever is necessary on top of the set employee contributions.
All occupational pension schemes must have arrangements for members to pay additional voluntary contributions (AVCs) to buy extra benefits. If you are a member of NHS Superannuation Scheme more information regarding AVCs is available in the leaflet 'Increasing your benefits' from the NHS Pension Agency.
AVCs can be used in different ways. They can simply be used for extra benefit at retirement or to buy early retirement, to allow for increases in pensions up to the retail price index or to increase the spouse's pension up to the two-thirds maximum.
There are also free-standing AVC schemes (FSAVCs) run by commercial companies e.g. building societies, insurance companies etc. These schemes are open to anyone currently in an Inland Revenue approved occupational pension scheme.
If you have worked for several employers and therefore have been a member of several different pension schemes, then you will be classed as an early leaver. If this is the case then you will either be a deferred pensioner i.e. will have left your pension entitlement in your former employer's scheme, or will transfer pension rights from one pension scheme to another.
If you are a member of the NHS Superannuation Scheme, further information is available in the booklet 'Leaving the Scheme' available from the NHS Pension Agency.
If you leave a pension scheme (which is contracted out) with less than two year's service then you can get a refund of your contributions less 20% tax and less an amount to reinstate you in SERPS. There is no refund of any contributions made by your employer during this period. A deferred pension may be possible but is dependent on the scheme's rules.
After two years service you can either have a deferred pension or transfer to another scheme. In a contracted-out final salary scheme a deferred pension has to be protected at least partly against inflation.
The rules covering deferred pensions are complex and can result in different parts of your pension getting different levels of increase. In short, all pension service from April 1997 is protected against inflation up to 5%.
As a deferred pensioner it may be worth while exercising your right to get a benefit statement once a year. This will help ensure you keep in touch with the scheme and that it has an up-to-date record of your address.
This alternative allows a member to get a transfer value to buy rights in a new scheme. This is basically a lump sum needed now to buy the required pension at retirement.
Transfer values must be calculated according to guidelines issued by the Institute and Faculty of Actuaries. However, these guidelines allow actuaries to make assumptions within certain ranges, therefore there is no guarantee that the actuary of the transferring scheme will make the same assumption as the actuary of the receiving scheme.
Actuaries must take account of benefits such as increases to pensions which are awarded at the discretion of the trustees. However, trustees can decide to authorise the actuary not to do this.
Schemes have to provide members with a transfer value within three months of the request. You then have three months to decide whether or not to proceed with the transfer. If you do not proceed, then there is no requirement on the scheme to provide another transfer value within the following 12 months.
Transfer values can fluctuate according to economic circumstances, so schemes must guarantee the amount for up to three months after providing the member with the quotation. If the member does want to transfer then schemes will have up to six months in which to make the payment.
Pension rights are not protected in take-overs in the same way as other conditions are protected by the TUPE transfer regulations. However, if you belong to the NHS Superannuation Scheme and your employment is transferred, you do have some protection. Government guidelines issued in January 2000 state NHS organisations should ensure that 'broadly comparable' pension schemes are available to employees affected by privatisation and contracting out.
In all other cases, if your employer is completely taken over there is a possibility that the current pension scheme will simply be maintained by the new employer. However, it is more likely that you will be faced with a decision about transferring into the new employer's scheme.
Money purchase schemes make no guarantee about the level of pension benefits available. Individuals pay into the scheme and build up a personal account. The amount of pension you ultimately receive will depend on the level of contributions into the scheme, how the contributions are invested and what kind of pension can be bought at retirement with the final personal account total.
If you are an early leaver, you can leave your accumulated entitlement in the fund to grow through returns on investment and growth in the capital value of the fund. Alternatively you can transfer your personal account to another scheme.
Full details of how an occupational pension scheme works (whether it is money purchase or final salary) will be set out in the trust deed and rules. These are agreed by the trustees who are legally responsible for running most occupational pension schemes.
Scheme booklets should have enough details about how the scheme works to avoid confusion over your pension entitlement.
Trustees can exercise their discretion in number of areas such as ill-health early retirement and annual pension increases. Some schemes may have member-nominated trustees on the board which may hold an advantage to the membership.
All occupational pension schemes must have a disputes procedure and all scheme members must be informed of the existence of the dispute procedures and whom to contact in the first instance with a complaint.
As a member of an occupational scheme you and your dependants have a right to a wide range of information. If trustees fail to provide the documents within specific time limits, they are liable to face prosecution and a fine. Such information would normally appear in an explanatory scheme booklet which should be supplied to prospective members before joining or at the latest, to members within two months of joining.
The information provided is usually only a summary with the full rules of the scheme being set out in the trust deeds and rules which members have a right to inspect.
You also have a right to statements about your benefits from an occupational pension scheme. You should be informed of the amount of your benefits and any conditions that may end or alter your payment. You should receive this statement before the benefit becomes payable or within one month of it first being paid.
If you are a member of a final salary pension schemes statements must be provided within two months of the request. If schemes provide annual statements automatically, there is no requirement to supply any further statements on request.
The statement can base the benefits either on pensionable service to date or up to normal pension age. No assumptions can be made about potential increases in earnings up to actual retirement. It should specify the date pensionable service began, the formula for calculating the benefit, your pensionable pay on the date information is given and details of how any deduction from benefit is calculated.
If you are member of a money purchase pension schemes you should be sent an annual statement giving details of your contributions paid during the previous year.
You must be informed about proposals to dispose of a pension fund surplus or deal with a deficit. The regulations require two notices to be given and you must be informed of your right to go to the Occupational Pensions Regulatory Authority if you believe that the proposals infringe the Pensions Act.
Stakeholder pensions are a new version of personal pensions and are known as money purchase or defined contribution pensions i.e. the pension at retirement will depend on the amount of contributions made and the investment returns over the life of the scheme. This is different to most occupational pension schemes which are final salary, guaranteeing to pay a pension at retirement related to earnings at or near retirement.
Stakeholder schemes will allow retirement at any age between 50 and 75 although the level of pension will be affected if you decide to retire early and have not built up a big enough fund to buy a reasonable level of pension. Upon retirement, you will use your fund to buy an annuity, which effectively is a commitment by the company from whom you buy it to pay you regular pension payments for life. It is advisable to shop around as annuity rates do vary and you may be able to get a better deal from a different company.
Stakeholder pensions must also provide a survivor's pension and a lump sum payable on the death of the member.
Stakeholder pensions can be taken out directly with a pension provider or other organisations such as Tesco, Marks & Spencer who are now also offering stakeholder schemes. It is up to you to decide who you consider provide the best deal. All schemes have to be registered with the Occupational Pensions Regulatory Authority.
Alternatively, you could go through an organisation which has negotiated a deal on its members' behalf. Also, your employer may provide access to a stakeholder scheme, particularly if they do not already provide an occupational scheme.
Pension contributions are paid over to the company running the scheme which will then invest them on your behalf in shares (also called equity) and other forms of investment such as property and government stock. The company should offer a small range of different investment options. This range is likely to vary from company to company. You will receive tax relief on your contributions as you do with contributions to occupational or personal pensions.
The amount of contributions paid may be varied and can be as low as £20 a month. Also it will be possible to stop and restart contributions at any time. This allows more flexibility than personal pension schemes which often had minimum contributions of £50 a month.
Inland Revenue rules allow you to contribute up to £3,600 a year into a stakeholder scheme whether or not you are earning. You may be able to pay in more than this and still get tax relief on the contributions depending on your age and level of earnings.
It is also possible to transfer to another stakeholder scheme at no cost.
The charge on stakeholder schemes can be no more than 1% of the value of the scheme, e.g. after a year of paying in £50 a month the fund at the end of the year will be £600 plus, say, £25 in investment returns so the charge will be 1% of £625 or £6.25.
"Decision-trees" are available from the Financial Services Authority (FSA) to help you decide whether a stakeholder pension is a good choice for you. Each tree runs through a series of straightforward questions about your circumstances in order to help you decide what you should do. They include tables setting out what you might expect to get from a stakeholder pension based on what you want to pay and how many years you have until retirement.
Stakeholder schemes must be run in the interest of their members either by trustees or by scheme managers authorised by the government's finance watchdog, the Financial Services Authority.
Stakeholder pension providers must supply you with an annual statement of contributions and must also inform you if contributions are not received within three months of the due date.
The statement should also indicate the current transfer value of your fund i.e. what your plan is currently worth if you wanted to transfer your entitlement into a different pension arrangement.
There is a range of basic information which must also be supplied, such as conditions of membership, how contributions are paid into the scheme, a summary of investment policy and the conditions of the scheme governing how your entitlement might be transferred to another pension arrangement or converted into an annuity.
Personal pensions are schemes mostly run by financial institutions such as banks and insurance companies. Such schemes often had minimum contributions of £50 a month or £500 as a lump sum and there were restrictions on varying contributions. Also, once you started a personal pension plan you could only switch pension companies at a considerable cost even if you found that the company managing your fund was delivering poor investment returns.
Charges on personal pensions are much more complex and are often front-loaded so you pay much more in the first few years of the pension. Therefore you are penalised if you are unable to maintain your contributions. Another cost associated with personal pensions is financial advice.
If you have a personal pension, then your rights to information are essentially the same as those in a stakeholder scheme.
One advantage for personal pensions is that since they are not linked to the employee's job, no problems arise should you change jobs. This may be beneficial if you are moving between jobs where there is no occupational pension scheme.
However, if your new employer does have a scheme, it will probably be best to join because employer schemes almost invariably produce a better pension than personal pensions. New tax regulations mean that from April 2001 it will be possible to be a member of an occupational pension scheme and to continue contributing to a personal pension. You may be able to transfer your entitlement into the occupational scheme if the scheme accepts it and/or if you think the resulting additional entitlement in the occupational scheme is worth it.
You can either suspend your personal pension plan or leave it paid up. You will need to check whether and for how long you can suspend your plan and whether this will fit in with your job plans. However, a paid up personal pension will involve charges and commission being deducted from your fund. It will then be left to build up investment returns to retirement.
The key issue if you have an existing personal pension plan is whether or not it is advisable to convert it into a stakeholder scheme. This will all depend on the costs associated with doing so and these may outweigh any potential benefits. You will need to contact an independent financial adviser for further guidance
The DSS publish a series of general guides which explain how different elements of the pensions system work: A guide to your pension options (PM1); State pensions (PM2); Occupational pensions (PM3); Personal pensions (PM4); Pensions for the self-employed (PM5); Pensions for women (PM6); Contracted-out pensions (PM7); and Stakeholder pensions (PM8).
There is also a range of leaflets covering state pensions, stakeholder and personal pensions and occupational schemes available.
Telephone No: 0845 31 32 33 - calls are charged at local rates. The guides are also available at http://www.pensionguide.gov.uk or from DSS Pensions, Freepost BS5555/1, Bristol BS99 1BL. The main one is the detailed, 100-page A guide to Retirement Pensions (NP46).
The DSS also provide Retirement Pension Forecasting; you can contact them on 0191 218 7585 and they will fill in a forecast form for you over the phone. Alternatively the form itself is available from your local social security office. You can also fill in the form yourself online at http://www.dss.gov.uk/lifeevent/penret
For specific advice based on your personal circumstances, then you should contact an independent financial adviser.
Should you use an independent financial advisor, you pay for the advice you receive either by commission being deducted from your pension contributions or by payment of a set fee. If you pay commission this should be set out on the quote you get from the pension provider. Any advice should be on the basis of a full analysis of your financial circumstances.
Anyone giving you financial advice must be properly authorised normally by the Financial Services Authority. Other professionals, such as accountants, can also give advice but must be covered by a recognised professional body such as the Institute of Chartered Accountants.
The Association of Independent Financial Advisers can provide information on independent financial advisors (Tel: 020 7628 1287) whilst IFA Promotions (Tel: 0117 971 1177) can provide you with a list of three independent financial advisers local to your area.
This is the main regulatory body covering the financial services industry and is gradually incorporating the responsibilities of several other financial watchdogs including the Personal Investment Authority and Investment Management Regulatory Organisation. The FSA has published a range of factsheets on different pension issues. The key one for those considering stakeholder pension is Stakeholder pensions and decision trees.
Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS. Tel: 020 76761000. Consumer helpline: 0845 606 1234 (local rate). Website: http://www.fsa.gov.uk
If you are a member of the NHS Superannuation Pension Scheme and require more detailed information you should contact the Agency quoting your NHS Superannuation reference number. This can be found on any past correspondence you may have received regarding your superannuation and always begins with 'SD'. If you do not have a reference number you should quote your National Insurance number instead which can be found on your payslip.
NHS Pensions Agency, Hesketh House, 200/220 Broadway, Fleetwood, Lancashire, FY7 8LG Tel. No. 01253 774774
The OPAS Pensions Advisory Service is an industry-funded voluntary advice scheme which is officially recognised in that it acts as a filter for cases referred to the Pensions Ombudsman. OPAS has a network of local offices and headquarters in London. The service can deal with queries about occupational, stakeholder and personal pensions and can even deal with general queries about the state scheme. If the query involves a complaint about an occupational pension scheme then complainants will have to go through their scheme's internal disputes procedure before approaching OPAS.
OPAS has produced a number of factsheets on some of the key issues it has to deal with including ill-health pensions and transfer values.
OPAS Pensions Advisory Service - 11 Belgrave Road, London SW1V 1RB. Tel: 020 7233 8080. Website: http://www.opas.org.uk.
There is an OPAS stakeholder pensions helpline open 8.30 a.m. to 6.30 p.m., Monday to Friday: 0845 601 2923 (calls charged at local rates). There is also a Website at http://www.stakeholderhelpline.org.uk.
OPRA monitors occupational and stakeholder pension schemes. It has a wide range of powers including regulating the way schemes are run and responsibilities and appointment of trustees. Under the 1995 Pensions Act, scheme advisors such as actuaries and accountants have a responsibility to contact OPRA if they are aware of any actions by the employer or trustees which may be in breach of regulations.
Occupational Pensions Regulatory Authority - Invicta House, Trafalgar Place, Brighton, East Sussex BN1 4BY. Tel: 01273 627 600. Website: http://www.opra.gov.uk.
The Pensions Compensation Board provides some security for occupational scheme members in certain circumstances and is funded through a levy on pension schemes. However, its powers are limited and tend to be restricted to where the employing company becomes insolvent and the loss of pension fund money is the result of fraud, theft or misappropriation. The amount of compensation paid will be the lesser of 90% of the minimum funding requirement, or 90% of the assets lost.
Pensions Compensation Board - 11 Belgrave Road, London SW1V 1RB. Tel: 020 7828 9794.
The Ombudsman can investigate complaints of maladministration in schemes which cause injustice or disputes of fact or law relating to occupational pension schemes. Cases are normally only taken up by the Ombudsman if they have been dealt with by OPAS first. The main categories of cases cover problems arising from schemes being wound up, problems with calculation of benefits, contribution refunds, incorrect, late or non-payment of pensions, transfers and ill-health benefits.
Pensions Ombudsman - 11 Belgrave Road, London SW1V 1RB. Tel: 020 7834 9144.
The Pensions Schemes Office (PSO) is the part of the Inland Revenue, which monitors schemes to ensure that they are complying with the rules that allow them to be exempt from tax. The 1995 Pensions Act gives the PSO increased powers to request information from schemes and to fine schemes which fail to keep proper records or provide the relevant information. The PSO also has new powers to conduct audits and inspect records.
Pensions Schemes Office - Yorke House, PO Box 62, Castle Meadow Road, Nottingham NG2 1BG. Tel: 0115 974 0000.
The Registry maintains a database of pension scheme information enabling people to trace benefits they may have in former schemes dating back to 1975.
Pension Schemes Registry - PO Box 1NN, Newcastle upon Tyne NE99 1NN. Tel: 0191 225 6316 --Monday to Friday, 9 a.m. - 5 p.m. You can also fill in a form online at http://www.opra.gov.uk.
Accrued rights or benefits - these are the benefits built up by the scheme member on the basis of service up to a given time, as opposed to those rights a member can expect to get from continuing membership of the scheme into the future.
Actuary - a professionally qualified person who assesses risks and their financial implications on behalf of pension schemes
Actuarial valuation- the actuary ensures that a final salary pension scheme is adequately funded by recommending a level of employer and (usually) employee contribution to the scheme. This is worked out by using details about the members (age, current salaries etc.) and assumptions about numbers who will leave and figures on death rates. The valuation is usually carried out once every three years, when there may be a recommendation to change the rate of contribution.
Additional voluntary contributions (AVCs) - members of occupational pension schemes can choose to pay extra contributions to improve the benefits they receive at retirement. This may either be an AVC arrangement run by their scheme or a free-standing AVC scheme run by a building society for example.
Annuity and annuity rates - an annuity is a contract to pay regular pension payments. A money purchase scheme (see below) builds up a fund which is used at retirement to buy an annuity and the annuity rate is the rate at which the capital sum is converted into regular pension payments.
Appropriate personal pension - this is a specific personal pension scheme, which allows an individual to contract out of SERPS.
Contracting out - most occupational pension schemes are contracted out of SERPS (see below); this means that they pay lower national insurance contributions and if they are final salary schemes they are currently committed to pay either a pension in place of SERPS (the guaranteed minimum pension) or to make a set level of contributions if they are money purchase schemes.
Deferred pensioner - this is someone who has left the pension scheme before normal retirement and who has left his or her entitlement with the scheme.
Defined benefit scheme- another name for a final salary or earnings-related pension scheme where the benefits are set as a proportion of pay at or near retirement, while the level of contributions into the scheme will rise or fall depending on the balance between the fund's assets and liabilities. Strictly speaking this is a broader category than final salary schemes as there are a small number of schemes which base the pension calculation on earnings averaged over the member's career rather than at retirement.
Defined contribution scheme - another name for a money purchase pension, making clear it is a scheme where no guarantees are made of the level of benefits at retirement, which will depend on the level of contributions, investment returns and other factors.
Final salary pension scheme - see defined benefit scheme.
Group personal scheme- a method commonly used by small employers to enable them to contribute to individual employees' pension arrangements avoiding the costs and commitment associated with setting up an occupational scheme.
Guaranteed minimum pension (GMP) - the level of pension an occupational final salary scheme had to provide until April 1997 in order to contract out of SERPS.
Integration - the practice by some schemes of reducing pensionable pay or benefits by an amount to "take account of the state pension" - the amount is usually equivalent to a multiple of the basic state pension or lower earnings limit.
Limited price indexation - the requirement to increase pensions in excess of GMP by the rate of inflation up to 5 per cent. The increase applies to all pension entitlement built up after 6 April 1997.
Lower earnings limit- this is the weekly amount (currently £72.00 per week, £3,744.00 per year for the period April 2001 to March 2002) above which workers are credited with national insurance contributions. It is often the deduction made from pensionable pay when schemes are integrated with the state scheme.
Money purchase pension schemes - see defined contribution scheme.
Primary threshold - this is the level at which employees start to pay National Insurance contributions and is £87.00 per week (£4,524.00 a year) from April 2001 to March 2002.
Protected rights - this is the part of a contracted-out money purchase pension or appropriate personal pension which is produced by the minimum level of contributions set by the contracting out requirements.
Reference scheme - the list of attributes with which schemes now have to comply if they are to contract out of SERPS.
SERPS - the state earnings-related pension scheme which pays a pension based on revalued career earnings - maximum for those retiring from 2010 of 20 per cent of earnings.
Transfer value - this is a calculation, by the actuary, of an early leaver's pension entitlement and should allow her/him to effectively buy pension rights in the pension scheme run by the new employer or, alternatively, transfer to a personal pension.
Trust deed and rules- the legal documents which set out the rules of most occupational pension schemes.
Trustee - The people appointed and/or elected to ensure that schemes are run in accordance with their trust deed and rules and in line with other regulations.
Upper earnings limit- this is the weekly amount (£575.00 per week, £29,900 per year for the period April 2001 to March 2002) above which workers no longer pay National Insurance contributions.
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