UK retirement benefits are provided through three ‘tiers’, with some overlap.
- The State Pension
- Employer-sponsored pensions
- Individual savings
Pensions legislation covers taxation, early-leaver benefits, transferability, disclosure of information, investment, divorce, accounting and funding.
State Pension Benefits
A single-tier State Pension of £175.20 per week (2020/21) is payable on reaching State Pension Age after 6 April 2016. Individuals with between 10 and 35 qualifying years of ‘National Insurance’ contributions receive a proportion of the full pension.
Transitional calculations apply for contributions paid before April 2016.
Employer-sponsored pension arrangements are typically defined contribution (DC) or defined benefit (DB), with hybrid variants also common. Legislation is being developed to allow Collective Defined Contribution (CDC) schemes.
Almost all employers are legally required to auto-enrol employees into a pension plan meeting minimum criteria linked to earnings above a specified threshold.
Income tax relief is used to incentivise pension savings, constrained by annual and lifetime limits on benefits and contributions (above which additional tax charges apply).
Individual Pension Savings
Individuals without employer-sponsored pension arrangements, or those wanting to top-up employer-sponsored provision, may access Personal Pension plans. These are typically DC in nature and administered by a regulated insurance company.