Chapter 21 - Pensions

Abstract

This chapter focuses on various issues related to pensions. Employees are increasingly being encouraged to contract out of the secondary state pension scheme and to make their own alternative provision. Under a defined benefit scheme, the benefits payable on retirement are fixed either as an amount or as a proportion of salary, and under a defined contribution scheme, the benefits payable on retirement depend on the amount accumulated in respect of each scheme member. The former is advantageous for the scheme member but the cost to the employer can fluctuate significantly over time. The latter has the benefit of a fixed cost for the employer but the employee bears the risk of the fund being insufficient to provide the level of retirement benefits hoped for. The directors of a company may consider other options that share the risks and costs of pension provision more equitably between employer and employee. All employers with five or more employees must generally give them access to a stakeholder pension scheme, unless they have made alternative pension provision. The Pensions Act 2004 is now the main legislation governing the control and management of occupational pension schemes where the Pensions Regulator supervises the regulation of all occupational pension schemes. Most pension schemes are set up as trusts and established under a formal trust deed and pension scheme trustees generally have a duty to obtain audited financial statements within seven months of the end of the scheme financial year gains and losses.