NIM01021 - Occupational and Personal Pension Schemes: Some basics

The Social Security Act 1986

The Social Security Act 1986 introduced new choices and reforms of pension provisions resulting in more flexibility for both employer and employee.

The State Retirement Pension

Retirement pension (RP) is made up of two parts:

• A basic pension which is payable to anyone who has paid enough NIC's and has reached the state pension age.
• An additional pension (AP) based on earnings from the LEL and up to and including the UEL, known as the State Earning Related Pension Scheme (SERPS) and from 6 April 2003 as the State Second Pension.

Graduated retirement benefit (GRB) based on earnings, is payable to anyone who paid into the National Insurance Graduated (NIG) Scheme which ran from 6 April 1961 to 5 April 1975.

Contracted-out Salary Related Schemes (COSR)

Under the Social Security Pension Act 1975 occupational pension schemes could only contract-out of SERPS if they promised the person a pension related to the level of their earnings. These are known as Contracted-out Salary Related (COSR) Schemes.

Contracted-out Money Purchase Schemes (COMP)

From 6 April 1988, occupational pension schemes that promise a minimum level of contributions and minimum payments could also contact-out of SERPS. These are known as Contracted-out Money Purchase (COMP) Schemes. A COMP Scheme provides a pension based on the value of the fund built up in the scheme, i.e. the investment return.

Appropriate Personal Pension Schemes (APP)

From 1 July 1988, employees could start an Appropriate Personal Pension (APP) instead of staying in SERPS. Employees can choose an APP rather than join their employer's pension scheme. An APP scheme, like a COMP scheme, provides a pension based on the value of the fund built up in the scheme.

Stakeholder pensions

Stakeholder pensions are a new type of low cost pension available to people from the 6 April 2001 to help boost their income later in life.

Employers can select a stakeholder pension scheme from as early as October 2000 (from those schemes approved and registered), however contributions cannot commence until 6 April 2001.

For further information about contracting-out, contact NICO National Insurance Services to the Pensions Industry (formerly Contracted-Out Employment Group).