Pensions Explained
Trying to explain UK pensions is difficult as the UK pensions
market is the worlds most complex.
UK Pension Provision falls into seven major divisions; Basic
State Pensions, State Second Pension(S2P), Occupational Pensions,
Stakeholder Pensions, Group Personal Pensions and
Personal or
Individual Pensions. Personal Accounts automatic enrolment and
the minimum employer contribution will be the new policies
joining these from 2012.
The pensions
The state provides basic pension provision intended to prevent
poverty in old age. Men over the age of 65 and women over the
age of 60 are entitled to claim state pension, although from
2010 the state pension age will be equalised and for women will
start to rise, eventually reaching the age of 65 by 2020.
Basic State Pension (BSP) or State Retirement Pension (SRP)
Qualification for Basic state pension is a "contribution based"
benefit, and depends on an individual's National Insurance (NI)
contribution history. For someone with the full number of
qualifying years (years in which NI was paid - typically 44 for
a man and 39 for a woman), it is payable at a flat rate of
£87.30 per week (2007/08). Less is paid for someone with fewer
qualifying years. State Pension can be claimed from State
Pension age: currently 65 for men and 60 for women (rising to 65
by 2020).
This is one of the great difficulties that the government is
facing especially with the changes in the demographic structure
and the social environment. There is also a belief that 'the
state will provide'.
The basic state pension was designed to replace a quarter of the
national average earnings level and
many people have made no additional provision especially those
in low incomes.
The reason why they have taken no action may be due to the fact
that they are financially
unsophisticated and probably unaware of the products:
Stakeholder pensions; or
Free standing additional voluntary contributions.
Even when aware no action may be taken due to:
more pressing demands for income; or
put off by high charges; or
pensions mis-selling.
Stakeholder pensions
Stakeholder pensions were introduced to target people in the
income range of £9,000 to £20,000. This
also introduced a number of features including low charges and
low contribution levels. Stakeholder pensions are also
often referred to - these are a form of pension arrangement
designed to be easily understandable and available. Most
stakeholder pension schemes are just personal pension schemes
set up on particular terms (for example with a restriction on
what charges the provider may make).
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