Pensions Background
The Finance Act 2004, sought to simplify the taxation of pensions and provide increased choice and flexibility. On 6th April 2006, the existing taxation regimes, eight in total, were replaced by a single set of rules applicable to all registered schemes, including defined benefit and contribution schemes, personal pension schemes, and occupational pension schemes.
The existing caps, including an earnings cap, were removed, and a single lifetime limit on the amount of pension saving was introduced. This limit was initially set at £1.5 million, increased to £1.8 million, and then reduced again to £1.5 million in 2012.
There is an annual limit on pension contributions, initially set at £215,000, which later rose to £225,000 but was ultimately reduced to £50,000 in 2010-2013.
The 2008 reforms increased flexibility regarding the treatment of death benefits. They raised the minimum retirement age from 50 to 55 for early retirement benefits and allowed the possibility, in some cases, for pension benefits to become payable to those who continued to work.
The Pensions Regulator became the regulator for occupational pensions in the UK, replacing the Occupational Pensions Regulatory Authority. The board of the Pension Protection Fund was established and took over responsibility for managing and planning the Pension Protection Fund and the Fraud Compensation Fund.
The 2004 legislation set statutory minimum funding requirements for defined benefit schemes and the single funding standard.
At least one-third of trustees must be member-nominated, and members from pensions or other organizations must participate in the election of the nomination of the trustees.
Trustees have legal obligations to be conversant with the relevant scheme documents and have knowledge and understanding of pension law or trust law and the funding principles, investment, and funding. The protection of pension rights and transfer of undertakings was enhanced, particularly protections applied to contributions, which must continue at a specified minimum level, and in the circumstances and benefits provided.
There is an obligation to consult employees and their representatives before making key changes to the pension schemes, including switching from defined benefit to defined contribution or choosing or removing employee contributions. Protections for early leavers with between three months and three years of service were enhanced, and a new priority scheme and winding-up were provided.
There are principal categories of state retirement pensions, A, B, C, and D. A and B are contributory schemes that make up the basics, comprising the basic state pension and an additional element from the State Earnings-Related Pension Scheme (SERPS) or the State Second Pension (S2P). A person qualifies for a Category A scheme pension through their national insurance contributions, while Category B pension arises from the contributions of a spouse or civil partner.
Category C and D pensions are non-contributory and are payable only in limited circumstances. Category C pensions apply to a limited and diminishing category of persons. Certain individuals, persons over 18, may receive a Category C or D pension if they are not entitled to any other pension or are entitled to less than the level of the Category D pension.
The state pension age ranges from 60 to 68, with those born before 6 April 1959 having a pension age of 65. Women born before 5 April 1950 attain pension age at 60, while women born between 1955 and 1959 reach pension age at 65, which will be equalized to 65 by November 2018.
Persons born after 6 April 1959 are treated equally regardless of gender, and there is a progressive increase in the state pension age, up to 66 by April 2020, with likely increases to 67 and 68 by 2046.
All sufficient earnings must have been credited in accordance with the Social Security Contributions and Benefits Act 1992. A person attaining the state pension age after 2010 must have made payments or credits for not less than 30 years, with 44 years of credits required for a man and 39 for a woman.