Pensions
A pension is a steady income given to a person
(usually
after
retirement).
Pensions are
typically
payments
made in the
form of a
guaranteed
annuity to a
retired or
disabled
employee.
Some
retirement
plan (or
superannuation)
designs
accumulate a
cash balance
(through a
variety of
mechanisms)
that a
retiree can
draw upon at
retirement,
rather than
promising
annuity
payments.
These are
often also
called
pensions. In
either case,
a pension
created by
an employer
for the
benefit of
an employee
is commonly
referred to
as an
occupational
or employer
pension.
Labor
unions, the
government,
or other
organizations
may also
fund
pensions.
Occupational
pensions are
a form of
deferred
compensation,
usually
advantageous
to employee
and employer
for tax
reasons.
Many
pensions
also contain
an insurance
aspect,
since they
often will
pay benefits
to survivors
or disabled
beneficiaries,
while
annuity
income
insures
against the
risk of
longevity.
While other
vehicles
(certain
lottery
payouts, for
example, or
an annuity)
may provide
a similar
stream of
payments,
the common
use of the
term pension
is to
describe the
payments a
person
receives
upon
retirement,
usually
under
pre-determined
legal and/or
contractual
terms.
UK Pension
Provision
falls into
three major
divisions:
State
Pensions
Occupational
Pensions
Individual
Pensions
State
Pensions
The state
provides
basic
pension
provision to
prevent
poverty in
old age. Men
over 65 and
women over
60 are
entitled to
claim. From
2010, the
state
pension age
for women
will start
to rise from
60,
eventually
reaching 65
by 2020. [1]
Basic State
Pension (BSP)
Qualification
for Basic
state
pension is
based on
National
Insurance
contribution
history. For
someone with
the full
number of
qualifying
years, it is
payable at a
flat rate of
£84.25 per
week
(2006/07). A
lower amount
of money is
payable for
someone with
fewer
qualifying
years.
Dependents
additions
are also
payable -
where the
dependent
does not
qualify for
State
Pension in
their own
right or
where they
have not yet
reached
State
Pension Age.
An Age
Addition was
introduced
in 1971 with
25p per week
added to the
State
Pension for
people aged
80 or over.
It remains
at this
level.
You can
claim basic
State
Pension from
State
Pension age:
currently 65
for men and
60 for women
(rising to
65 by 2020).
You can get
a basic
State
Pension by
building up
enough
'qualifying
years'. You
don't have
to claim
your State
Pension as
soon as you
reach State
Pension age.
You can
claim it
later and
get a higher
weekly
amount or
take the
option of a
one-off
taxable
lump-sum
payment plus
your normal
State
Pension
instead. [1]
Additional
Pension
This has
been
available
only to
employees
paying
National
Insurance
and certain
exempted
groups (not
including
the self
employed)
Graduated
Pension or
Graduated
Retirement
Benefit From
6th April
1961 until
5th April
1975.
Qualification
based on
payment of a
number of
fixed
National
Insurance
payments
('stamps')
The system
of National
Insurance
payments
used was not
the one in
use today.
State
Earnings-Related
Pension
Scheme (SERPS)
From 6th
April 1978
to 5th April
2002.
Qualification
based on
band
earnings
above a
Lower
Earnings
Limit (LEL)
in each
year. The
LEL (£84 per
week /£4368
pa in
2006/07) is
usually set
at the same
level as the
BSP (£84.25)
and
increases
when it
does. Band
earnings lie
between the
LEL and an
Upper
Earnings
Limit (UEL)
at which
National
Insurance
contributions
cease to be
payable by
the employee
(£645 per
week/£2,795
per month in
2006/07).
The UEL is
also
adjusted
annually.
State Second
Pension
(S2P) From
6th April
2002
onwards.
Qualification
based on
earnings at,
or above,
the LEL, but
no band
earning
calculation
is made
until
earnings
reach a
higher base
(£12,500 pa
in 2006/07)
called the
Lower
Earnings
Threshold
(LET).
Earnings
below the
LET (but
above the
LEL) are
credited up
to the LET.
Pension
Credit
Reforms
introduced
by Gordon
Brown, when
Chancellor
of the
Exchequer,
designed to
lift a large
number of
the poorest
retired
people out
of poverty,
introduced
the Minimum
Income
Guarantee in
1997,
replacing it
in 2003 with
the Pension
Credit.
Pension
Credit has
two
elements.
Firstly the
Guaranteed
Credit which
applies if
the income
of the
claimant,
and partner,
is below a
certain
level. This
starts from
60 so if a
younger
partner is
working then
that income
is taken
into
account,
along with
any savings
over £6000.
In effect
this is
Income
Support for
the over
60's.
When the
claimant, or
partner,
reaches 65
then the
second
element,
Savings
Credit, also
applies.
Broadly,
state or
personal
pensions and
savings over
£6000 can
attract
extra money
as a
'reward' for
providing
for
retirement.
It is
possible for
a claimant
on a low
state
pension with
savings over
£16000 to
receive
Savings
Credit as
well as a
claimant
with no
savings but
with
significant
personal
pensions.
It is very
important
that anyone
in receipt
of the
Guaranteed
Credit part
of Pension
Credit
applies for
Council Tax
Benefit if
they have
not already
done so,
incidentally
the single
person
discount is
not affected
by this, and
also claim
Housing
Benefit if
they pay
rent.
The amount
of Pension
Credit can
also be
increased if
the claimant
and/or
partner are
disabled.
The
complexity
of Pension
Credit has
been
criticized
as well as
the amount
at which the
Guaranteed
Credit is
set.
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