Pensions in the UK

The UK state pension system has existed for more than 100 years, occupational pensions have been around for even longer, with the first one being recorded around 1670 (see key facts on the right of this page).

Today’s pension system consists of three pillars. The first two tiers are compulsory, unfunded public schemes, the basic state pension and the second state pension. The third tier consists of private savings, which are voluntary but incentivised through tax breaks. All occupational and personal pensions fall into this category. The upcoming 2012 reforms are intended to increase the number of people saving money privately.

Looking at the third tier, a distinction is often made between defined benefit (DB) and defined contribution (DC) pensions. Over the last few decades, the number of DB schemes which are open to new members has fallen, and more recently the number of schemes still open for existing members has fallen as well, as NAPF research shows. So far, the public sector has bucked this trend, but changes and reforms are being discussed in this area as well.

The recent financial and economic crisis has not only led employers to consider if they can still afford to offer generous final salary schemes, it has also left its impact on corporate governance and investment. In 2010, a lower share of pension fund assets was invested in equity than in previous years, as the NAPF Annual Survey 2010 showed. The role of institutional investors is being discussed in the light of the crisis, and new initiatives such as the Stewardship Code are emerging.

But it is not only markets which influence the shape of pensions; rules, legislation and regulation play an important role as well. In addition to bodies such as the Pensions Regulator and the Pension Protection Fund, the European Union is increasingly influencing pensions in the UK. The recent ruling that men and women cannot be charged different insurance premiums, and hence should get the same annuity rates, will have a huge impact on the pension sector.

The documents below provide an overview over these and other topics.