Introduction To Workplace Pension Provision In The Uk - Pensions In 30 Podcasts, Episode One

This series has been created to provide an overview of these subjects for anyone who is new to pensions, for those who deal with pensions at work, or for people with some experience but who want a high level refresher.

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Key points

Pensions in the UK are provided in a number of different ways: state pensions versus private pensions; occupational versus personal pensions; and trust-based versus contract-based. Employers provide pensions to fulfil legal obligations, because they are a tax-efficient benefit and to retain and attract employees. Main sources

Pension Schemes Act 1993; Pensions Act 1995; Pensions Act 2004; and Finance Act 2004. Pension provision in the UK has evolved over the past 100 years. This long period of organic development has created a complicated system with plenty of jargon and abbreviations.

This overview provides a basic framework for understanding pensions in the UK and sets the scene for the rest of this series of fact cards.

State pensions

The UK's state pension previously consisted of two tiers of provision: the Basic State Pension and the Additional State Pension. In 2016, this was replaced by a Single-tier State Pension.

The state pension is a contributory system based on National Insurance contributions. In addition, universal old age benefits are provided through the safety net of Pension Credits.

Private pensions

Private pensions include:

Occupational pension schemes (including both private sector and public sector pension schemes); and Personal pension schemes. Occupational pension schemes are set up by employers to provide retirement benefits for their employees. They are typically trust based arrangements.

Personal pension schemes are typically contract-based arrangements set up with an insurance provider or other financial services company.

Type of pension benefits

There are two main types of pension benefits:

Defined benefit (including final salary and career average or CARE) - members are promised a defined level of benefit. The cost risk of providing this lies with the employer. Defined contribution (money purchase) - members build up benefits based on contributions and the investment return on their savings. Under a defined contribution scheme, there is no guarantee as to the level of benefits that a member will receive. The cost risk therefore...

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