Pensions Act 2004
The Pensions Act 2004, which enables a number of the policies outlined in this section, received Royal Assent on 18 November 2004, following publication of the Pensions Bill, the Government's Green Paper 'Simplicity, security and choice: Working and saving for retirement' in December 2002 and 'Simplicity, security and choice: Action on occupational pensions' in June 2003.
- Read the Pensions Act 2004 on the HMSO website
- Read Simplicity, security and choice: Working and saving for retirement (234KB)
- Find a copy of the Pensions Bill (12 May 2004) on the UK Parliament website
- For developments since 2004, see the National Pensions Debate
- Read a short Guide to the Pensions Act 2004 (49KB)
- Find out about the Timetable of Events (12KB)
The Government's pension reform package aims to:
- help company scheme members whose employer has gone bust
- improve protection for company pension scheme members
- introduce new retirement options
- encourage financial planning for retirement
- make pension provision easier for employers and pension providers
- build and strengthen partnerships
- Background
Help company scheme members whose employer has gone bust
Where companies with under-funded pensions go bust, workers find themselves severely short-changed on the pension they were expecting. With the Pension Protection Fund, from April 2005 people in salary-related occupational pension schemes will be more assured of getting the kind of level of retirement income they were promised. The fund will be complemented by The Pensions Regulator which will make it easier for businesses to run good pension schemes. It will focus on the under-funding, fraud and poor administration that can threaten members' benefits, while minimising interference for well-run schemes.
- Find out more about the Pension Protection Fund
- Find out more about the The Pensions Regulator
Where people have lost out because their employer went bust before the Pension Protection Fund is introduced, the Financial Assistance Scheme may be able to offer help.
- Find out more about the Financial Assistance Scheme
Improve protection for company pension scheme members
The Government plans to further improve the security of pensions for scheme members by:
- introducing the Pension Protection Fund (see above).
Find out more about The Pension Protection Fund - extending protection to employee’s pension rights when they transfer from one employer to another within the private sector.
Find out more about pension protection on transfer of employment - giving people in short-stay jobs better opportunities to build up pension rights
- introducing a requirement on employers to consult before making changes to pension schemes to ensure changes are developed in partnership.
Find out more about consultation by employers.
These plans follow the Government’s introduction of regulations to:
- increase the amount that non-pensioner scheme members should receive if their salary-related pension scheme winds up while the sponsoring employer is solvent
- distribute the limited assets of underfunded schemes more fairly between members if their salary-related scheme winds up.
- Visit the HMSO website to find more details of these regulations
Introduce new retirement options
The Government wants people to make informed choices about how and when to save, and how long to work, so they get the income they expect in retirement. It hopes to empower older people to improve their retirement prospects by keeping active for longer. The State Pension age will stay at 65, so no-one is forced to work beyond that. But, by tackling age discrimination and freeing people to work part-time while drawing a pension, it hopes to make working longer more attractive. There are plans to:
- provide a better deal for people who choose to draw their State Pension beyond their State Pension age – including a new option to take a lump sum.
Find out more about State Pension Deferral - make compulsory retirement ages unlawful, unless employers can show that they are objectively justified
- allow people to continue working for the same employers while drawing their occupational pension
- raise the earliest age that a pension may be taken from age 50 to age 55, to further the fact that extending working life can be beneficial for both employee and employer.
Encourage financial planning for retirement
The Government aims to ensure that all people of working age have access to the relevant information and tools they need in order to facilitate planning for financial provision in retirement. As part of this policy, the Government is developing an online retirement planner to be launched in Spring 2006. The planner will enable people to view and estimate their projected income, estimate the income they think they might need in retirement, calculate any shortfall and provide options to address this gap.
In addition, Simplicity, Security and Choice: Informed choices for working and saving, in our Publications section, outlines steps to empower people to take control of their retirement planning. It is aimed at fostering an increased awareness among people of working age about actively and regularly reviewing financial planning for retirement. It aims to allow a better understanding by the individual of the importance of long-term savings, the value of savings they already have and awareness of any shortfall in their financial expectations for retirement.
We are also working with employers to encourage employees to save more and for longer. The Government believes that employers have a crucial role to play as providers of, and contributors to workplace pension schemes and as a source of information about pensions options.We therefore carried out a pilot study in Summer 2004 to evaluate the effectiveness of providing different forms of pensions information and advice in the workplace.
We are also working with pension providers and employers to evaluate a range of joining techniques to maximise membership of workplace pension schemes. One of the techniques we are evaluating is Automatic Enrolment, where employees automatically become members of their employer’s scheme but can choose to opt out. The findings from both these studies will be available at the end of Summer 2005.
The Government has received a high level of support for the provision of Combined Pension Forecasts; therefore it hopes to extend this service across the pensions industry (employers and pension providers), in first instance, by working in partnership with them to encourage voluntary participation.
- Find out more about the free Combined Pensions Forecast service on The Pension Service website.
An integral part of the process of viewing the financial package expected in retirement is the ability to trace any old or ‘lost’ pension. Currently, the pension tracing service forms part of the responsibilities of the Occupational Pensions Regulatory Authority (Opra). It has been agreed that, from April 2005, the new Pension Regulator replaces Opra, the Department for Work and Pensions will take responsibility for the pensions tracing service. The tracing service function will become an element of the Retirement Planner when it is launched.
Make pension provision easier for employers and pension providers
Simplification measures will make it easier for employers to provide pensions, by cutting through the red tape. How?
- By simplifying the tax regime. Find out more about the pensions measures in the Finance Act 2004.
- Schemes will be freed to set their funding and investment strategy to their own particular characteristics. Find out more about plans to replace the Minimum Funding Requirement with scheme-specific funding arrangements.
- A host of regulations around administration – including on trustees, tax, dispute resolution and contracting out – will be simplified. There will also be a relaxation of mandatory indexation requirements (this will not affect pensions already in payment, nor the value of existing accrued rights). Find out more about how trustees and directors will be affected.
- New rules on changing scheme rules and the rights of scheme members will give employers and providers greater freedom. Find out more about modification of subsisting rights.
- New opportunities for the development of pan-European occupational pension schemes. Find out more about cross-border schemes.
Build and strengthen partnerships
The Green Paper set out proposals to renew partnerships between the Government, individuals, employers and the financial services industry.
- The importance of employers – Employers have a major role to play in the pensions partnership by providing access, information and contributions to pensions for their employees. The workplace is an effective environment through which people can save – administration is more efficient and there are tax advantages for the employer and the employee. There are also other benefits for the employer – good pension provision helps staff recruitment, retention and motivation.
To develop and promote the pivotal role of employers in pension provision, the Government has also established an independent Employer Task Force on pensions.
- For more information, visit the Employer Task Force website.
- For more information, visit the Employer Task Force website.
- Pensions Commission – Another major contributor to the pensions partnership is the Pensions Commission, set up following the publication of the Green Paper to monitor and independently review the private pensions and long-term savings systems. It will examine how effective the voluntary nature of the UK pensions system is.
- For more information, visit the Pensions Commission website.
Background
1995 Act and Goode Report
The last major Pensions Act in Great Britain was that of 1995, which was in large part inspired by the Goode Report. Entitled Pension Law Reform –The Report of the Pension Law Review Committee –this was published in September 1993, and was the result of the establishment of an independent committee, which the Government asked to review the framework of law and regulation within which occupational pension schemes operated. It took into account the interests of: members, pensioners and employers.
1997-2000
The main provisions of the 1995 Act took effect in 1997, just before the General Election of that year. The immediate challenge for the incoming Government was pensioner poverty. It therefore introduced the Minimum Income Guarantee, the Pension Credit and above-inflation increases in the basic State Pension.
A further challenge was to help tomorrow’s pensioners provide for their retirement. At the time of the 1998 Green Paper A new contract for welfare: partnership in pensions, the incomes of better-off pensioners had been rising dramatically due to the maturing of the State Earnings-Related Pension Scheme (SERPS) and the growth of occupational pensions. But it was also clear that some people were not saving enough or working long enough, particularly in light of rising longevity.
So, to complement the Government’s reforms to tackle pensioner poverty, the 1998 Green Paper also set out reforms, implemented through the Welfare Reform and Pensions Act 1999 and Child Support, Pensions and Social Security Act 2000 such as replacing SERPS with the new State Second Pension to provide more generous pensions for those on low and moderate incomes, many carers and people with disabilities, and introducing stakeholder pensions to provide a secure, simple and flexible vehicle for saving in retirement.
Myners Report
In March 2001 following the publication of Sir Paul Myners' report 'Institutional Investment in the United Kingdom: a review' the Government announced proposals to replace the minimum funding requirement with a scheme specific approach (requiring primary legislation); and ruling out (at that stage) a discontinuance fund and insolvency insurance.
- Find out more about the Myners Report on the HM Treasury website.
Simplicity, security and choice: Working and saving for retirement
In Spring 2002 the then Secretary of State for Social Security asked Alan Pickering to look at how the administration of occupational pension schemes could be simplified. Ron Sandler was jointly commissioned by the Chancellor of the Exchequer and the Secretary of State to review retail savings in the same period. A Quinquennial review of the Occupational Pensions Regulatory Authority (Opra) and an NAO Value for Money study into how Opra worked took place during 2002. The outcomes of all these separate reviews showed that major themes for pension reform were emerging.
- Read the Pickering report (224KB) in our Publications section.
- Find out more about the Sandler review on the HM Treasury website.
- Read the Quinquennial review of Opra (May 2002) (64KB) in our Consultations section.
- In December 2002 the Government published a Green Paper entitled 'Simplicity, security and choice: Working and saving for retirement' [Cm 5677], and its proposals for simplification of the tax treatment of occupational and personal pensions.
- Read Simplicity, security and choice: Working and saving for retirement in our Consultations section.
Working and saving for retirement: Action on occupational pensions
In response to the ensuing consultation, in June 2003 the Secretary of State for Work and Pensions published 'Working and saving for retirement: Action on occupational pensions' [Cm 5835], which focussed increasingly on the need for member protection to rank alongside the other themes. It presaged primary legislation across the areas consulted, including a Pension Protection Fund to compensate members of defined benefit and hybrid schemes whose employers become insolvent leaving the pensions scheme unable to meet its liabilities. The European Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision was adopted in September 2003 for implementation by September 2005.
Simplicity, security and choice: Informed choices for working and saving
In February 2004 the Secretary of State for Work and Pensions carried broader policy on financial retirement planning forward in 'Simplicity, security and choice: Informed choices for working and saving' [Cm 6111].
- Read Simplicity, security and choice: Informed choices for working and saving in our Publications section.
These various strands of development have come together in this Pensions Bill.
- To find out more about the Pensions Bill (a Public Bill), or indeed other Bills before Parliament (including transcripts of debates and explanatory notes), visit the Parliament website; and follow the appropriate link to the required document.
- Find out more about the Government's pension reform plans