Pensions in the United Kingdom, whereby United Kingdom tax payers have some of their wages deducted to save for retirement, can be categorised into three major divisions - state, occupational and personal pensions.
The state pension is based on years worked, with a 35-year work history yielding a pension of £203.85 per week. It is linked to wage and price increases. Most employees and the self-employed are also enrolled in employer-subsidised and tax-efficient occupational and personal pensions which supplement this basic state-provided pension.
Historically, the "Old Age Pension" was introduced in 1909 in the United Kingdom (which included all of Ireland at that time). Following the passage of the Old Age Pensions Act 1908 a pension of 5 shillings per week (£, equivalent, using the Consumer Price Index, to £ in present-day terms), or 7s 6d per week (£, equivalent to £/week today) for a married couple, was payable to persons with an income below £21 per annum (equivalent to £ today), The qualifying age was 70, and the pensions were subject to a means test. The age of eligibility was moved to 65 for men and 60 for women, but from April 2010, the age for women is gradually being harmonised to match that for men, and the retirement age for both men and women is increasing to 68, based on date of birth, and by no later than 2046.
History
Until the 20th century, poverty was seen as a quasi-criminal state, and this was reflected in the Vagabonds and Beggars Act 1494 that imprisoned beggars. In Elizabethan times, English Poor Laws represented a shift whereby the poor were seen merely as morally degenerate, and were expected to perform forced labour in workhouses.
The beginning of the modern state pension was the Old Age Pensions Act 1908, which provided 5 shillings (£0.25) a week for those over age 70 whose annual means did not exceed £31 10s. (£31.50). It coincided with the Royal Commission on the Poor Laws and Relief of Distress 1905–1909 and was the first step in the Liberal welfare reforms towards the completion of a system of social security, with unemployment and health insurance through the National Insurance Act 1911.
In the early 20th century, occupational (workplace) pension schemes started to become more common, with one driver being the Finance Act 1921 which provided tax-relief on pension scheme contributions.
After the Second World War, the National Insurance Act 1946 completed universal coverage of social security. The National Assistance Act 1948 formally abolished the poor law, and gave a minimum income to those not paying National Insurance. The Basic State Pension was also introduced in 1948. Occupational pension schemes also flourished after the Second World War, with pensions becoming a key tool to attract and retain staff.
In the second half of the 20th century, there was a succession of legislative changes to protect pension scheme members, prevent abuse of the generous tax-reliefs available and prevent fraudulent activity. Some of these changes were precipitated by Robert Maxwell's plundering of the Mirror Pension Funds. This led to the Goode Report, whose recommendations were implemented by comprehensive statutes in the Pension Schemes Act 1993 and the Pensions Act 1995.
The early 1990s established the existing framework for state pensions in the Social Security Contributions and Benefits Act 1992 and Superannuation and other Funds (Validation) Act 1992.
In 2002 the Pensions Commission was established as a cross-party body to review pensions in the United Kingdom. The first Act to follow was the Pensions Act 2004, which updated regulation by replacing the Occupational Pensions Regulatory Authority (OPRA) with the Pensions Regulator and relaxing the stringency of minimum funding requirements for pensions, while ensuring protection for insolvent businesses. In a major update of the state pension, the Pensions Act 2007 aligned and raised retirement ages. Since then, the Pensions Act 2008 has set up automatic enrolment for occupational pensions, and a public competitor designed to be a low-cost and efficient fund manager, called the National Employment Savings Trust (or "Nest").
Partially as a result of the new regulation, since the turn of the century there has been significant decline in the provision of defined benefit pensions in the private sector, with money purchase arrangements increasingly being used for new benefit accrual.