Country Profiles

United Kingdom

Country Profiles

United Kingdom

Complementary pensions (Voluntary)

Updated: 30 November 2022
2021: Pension Schemes Act; strengthens The Pensions Regulator's (TPR) powers and gives TPR the ability to impose large fines and introduces a new criminal offence. This enables TPR to bring in a much stronger set of standards for the funding of DB schemes whilst also introducing early warnings to TPR relating to corporate activity that could have a negative impact on DB savers. The Act also introduces new climate-related reporting duties for trustees as well as a new type of pension scheme known as Collective Defined Contribution (CDC). The Act also sets the enabling framework for the introduction of Pensions Dashboards - an online platform where savers can see all information about their pension savings in one place.

2017: Pension Schemes Act; The Act's primary aim is to provide for the greater regulation of master trusts. From April 2017 occupational pension schemes that are within the definition of a Master Trust as set out in the Pension schemes Act 2017 will be expected to meet new requirements. The Pension Schemes Act 2017 places duties on those involved with Master Trusts to report certain events to us that may indicate that the scheme cannot continue to operate, known as ‘triggering events'. Trustees are also prohibited from increasing or introducing new member charges during a triggering event period. Certain events (as set out in section 22(6) of the 2017 Act) are ‘triggering events'. These duties apply retrospectively back to 20 October 2016.

2015: Pensions Schemes Act 2015; introduced new flexibilities for people saving into defined contribution pension schemes.

2014: Pensions Act 2014; contains provisions to roll-out the single tier State Pension and bring forward the increase of the State Pension Age to 67.

2013: Public Service Pensions Act 2013; introduced the framework for the governance and administration of public service pension schemes and provides for an extended regulatory oversight by TPR.

2011: Pensions Act; amended legislation around the timing of the increase in State Pension age to 66, automatic enrolment into workplace pensions (earning threshold for eligibility, timing, simplification and waiting periods), use of CPI rather than the RPI for the general measure of inflation for up-rating of social security benefits, State Pensions and public sector pensions (and PPF compensation payable).

2008: Pensions Act; further develops the requirements for personal accounts, placing responsibilities on employers to enrol employees automatically in a personal account arrangement (or in a qualifying occupational pension scheme); provides for the extension of the role of the Personal Accounts Delivery Authority and for some changes to the Financial Assistance Scheme and the sharing of compensation from the Pensions Protection Fund in the event of divorce; The Pensions Regulator was given a duty to maximise employer compliance with the employer duties and the employment safeguards introduced by the Pensions Act 2008.

2007: Pensions Act; establishes the Personal Accounts Delivery Authority in initial start-up form; abolishes contracting-out of the State Second Pension (S2P) for defined contribution pension schemes; increases the level of payments from the Financial Assistance Scheme.

2005: Finance Act; further amends the new tax approval regime introduced by Finance Act 2004.

2004: Pensions Act; establishes The Pensions Regulator (TPR) to replace the Occupational Pensions Regulatory Authority (OPRA), with extensive new powers to monitor and regulate trust-based pension arrangements; establishes a register of occupational and personal pension schemes; imposes reporting (whistle-blowing) requirements on trustees and on professionals advising pension schemes; establishes the Pension Protection Fund (PPF) to provide compensation to members of pension schemes where the sponsoring employer becomes insolvent and the scheme does not have sufficient resources to buy out the benefits at the PPF compensation level on a commercial basis.

2004: Finance Act; changes the regime for tax approval of pension schemes to remove restrictions on benefit design of defined benefit schemes and provides tax privileges more flexibly on all pension scheme benefits up to the so-called Lifetime Allowance, with an upper limit also on contributions that can be made on a tax-efficient basis in each tax year; this legislation largely replaces the relevant provisions of the Income and Corporation Taxes Act 1988 and the Finance Acts 1986 and 1989.

2000: Child Support, Pensions and Social Security Act; introduces the State Second Pension (S2P) to replace the State Earnings-Related Pension Scheme (SERPS) and alters rules for contracting out", member-nominated trustees and winding up of occupational pension plans. The ability of Defined Benefit (DB) schemes to contract-out of the State Second Pension ended on 6 April 2016, following the introduction of the single tier state pension. For employers with DB schemes which remain open to future accrual, this will increase National Insurance (NI) costs for employers and members. 1999: Welfare Reform and Pensions Act; defines "stakeholder pensions" and requires that employers must provide access to them, specifies rules for pensions sharing on divorce.

1997: Finance Act; removes the right of pension funds to recover Advanced Corporation Tax (ACT) in respect of dividends on company shares in which they are invested.

1995: Pensions Act; establishes the Occupational Pensions Regulatory Authority (OPRA) and the Pensions Compensation Board, sets requirements for certification of contracted-out plans, requires the establishment of internal dispute resolution mechanisms and equal treatment of men and women and establishes minimum funding requirements for defined benefit plans.

1993: Pension Schemes Act; consolidates earlier law on occupational and personal pension plans, including requirements for "contracting out" of the State Earnings-Related Pension Scheme (SERPS), protection of early leavers, protection of rights and the role of the Pensions Ombudsman.

1992: Social Security Contributions and Benefits Act; consolidates earlier law setting out benefits in the State Earnings-Related Pension Scheme to be given up by members of "contracted-out" occupational and personal pension plans.

1990: Social Security Act (now consolidated into later acts); establishes the Pensions Ombudsman.

1989: Finance Act; introduces a limit on the amount of earnings on which benefits and contributions of subsequent members of tax-approved plans may be based.

1988: Income and Corporation Taxes Act; defines the rules regarding the tax qualification of company pension plans (largely replaced by the Finance Act 2004).

1986: Finance Act; introduces limits on the surplus which may be held tax-free within approved pension schemes and encourages scheme sponsors to increase benefits or reduce contributions to restrict the build-up of surplus in the scheme.

1975: Social Security Pensions Act; introduces the State Earnings-Related Pension Scheme (SERPS), implemented from April 1978 (and replaced from 2002 by S2P in accordance with the Child Support, Pensions and Social Security Act 2000).
Occupational pension plans were first regulated by the 1834 Superannuation Act, long before the introduction of social security pensions."

A pension scheme is defined in the tax legislation (Section 150(1) Finance Act 2004) as a scheme or other arrangement(s) that can provide benefits to a person/in respect of a person in any of the following circumstances:
  • retirement
  • death
  • having reached a particular age
  • serious ill-health or incapacity, or
  • similar circumstances.

A pension scheme does not have to provide benefits in all of these situations. For example, if a scheme provides only death in service benefits it would still fall within the definition of a pension scheme.

Under Section 150(2) Finance Act 2004, a registered pension scheme is a pension scheme that is registered under Chapter 2 of Part 4 of the Finance Act 2004 because either:

  • an application to be registered has been made and the scheme has been registered by HM Revenue & Customs (HMRC),
  • or the scheme is treated as automatically registered.

The main benefit of a pension scheme being registered is the availability of certain tax reliefs and exemptions.

A pension scheme is automatically registered because it was either:

  • an approved pension scheme on 5 April 2006 and before 6 April 2006 did not opt out of becoming registered, or
  • it is a deferred annuity contract purchased on or after 6 April 2006 to secure benefits under a registered pension scheme.

If a scheme is not a registered pension scheme it may be an employer financed retirement benefit schemes (EFRBS). An EFRBS is a scheme that can pay certain retirement or death benefits for employees or former employees called ‘relevant benefits'. The establishment of an EFRBS should be reported to HMRC.

There's no tax relief for employee contributions to an EFRBS and such schemes do not get any of the explicit tax advantages that registered schemes get. For example, an EFRBS should pay tax on its investment income. Employers can get deductions on their contributions to EFRBS as expenses but this is tied to the member being charged on their benefit, so the normal business reliefs that exist for the employer can be deferred if and when the income tax charges are deferred for the employee. When benefits are taken from an EFRBS, any lump sum is treated as employment income and taxable on the employee primarily under the Pay as You Earn (PAYE) - the system used by UK employers to deduct income tax and national insurance contributions before paying a person's wages.

Plan sponsors

Types of plans

Pension schemes can be described in a variety of ways and some are specifically defined in the pensions tax legislation. Very broadly the main types are:
  • occupational pension schemes
  • public service pension schemes, and
  • personal pension schemes

Occupational pension schemes

An occupational pension scheme is a scheme established by an employer or a group of employers for the purpose of retirement and other benefits to its employees. Occupational pension plans are normally established under trust with assets fully segregated from the assets of the sponsoring employer, and managed under the responsibility of trustees. Under automatic enrolment - introduced in 2012 - employers must offer a workplace pension scheme which meets automatic enrolment rules and enrol their eligible workers in it. This requirement has applied to larger employers since October 2012 and applies to all employers as of 2018.

Whether someone works full time or part time, their employer will have to enrol them in a workplace pension scheme if they:

  • Work in the UK
  • Are not already in a suitable workplace pension scheme
  • Are at least 22 years old, but under State Pension age
  • Earn more than £10,000 a year (tax year 2022-23)

These criteria also apply to people on short-term contracts, agency workers, or those on maternity, adoption or career's leave. Employers are not required to automatically enrol staff earning less than £10,000, or above £6,240 (2022-23), into a pension scheme. However, employees in this group may still ask to join the scheme in which case the employer must make contributions to the scheme for the employee.

Under automatic enrolment, employers must choose a pension scheme which meets the requirements of automatic enrolment, including meeting minimum levels of contributions or allowing benefits to build up at least at a minimum rate. Such ‘qualifying schemes' may be either defined benefit schemes or defined contribution (money purchase) schemes, trust-based or contract-based. Stakeholder schemes, which employers with five or more staff were required to provide for their staff before automatic enrolment (post-October 2001), may also be used for automatic enrolment purposes provided they meet the automatic enrolment rules. The Pensions Regulator (TPR) is responsible for ensuring that all employers comply with workplace pension law. The employer is responsible for completing a declaration of compliance with TPR to state what they have done to comply with their duties.

People who have been automatically enrolled into a pension scheme, or have opted into a pension scheme, have the right to ‘opt out' of their employer's pension scheme. The decision to opt out of the scheme must be taken freely by the member. People cannot opt out of their scheme until after they've been automatically enrolled. The opt-out period is one month from when active membership is created, or they receive their letter with the enrolment information, whichever is latest. The employer must issue a full refund of any contributions the staff member has made into a pension scheme within a month of receiving a person's valid opt-out notice.

It is a legal requirement for pension scheme trustees or managers to register their occupational pension scheme with The Pensions Regulator within three months from the date on which the scheme first becomes registrable i.e., has two or more members. It is the legal responsibility of the trustees or manager of a registered pension scheme with two or more members to submit a scheme return to The Pensions Regulator.

Trustees and scheme managers must also fulfil other reporting duties including providing scheme recovery plans and reporting breaches of law.

Public service pension schemes

In March 2011 the Independent Public Service Pensions Commission recommended that the government should introduce primary legislation to provide greater transparency, simplicity and certainty around Public Service Pensions. The Public Service Pensions Bill was introduced to Parliament in September 2012. The House of Commons and House of Lords reached agreement on the wording of the Bill on 24 April 2013, with Royal Assent granted the following day.

The Public Service Pensions Act (2013) introduced the framework for the creation of schemes for persons in public service (as set out in s1(2) of The Act) and also the governance and administration of such schemes. It also provides for extended regulatory oversight by The Pensions Regulator. The Act is intended to provide a common framework for ‘responsible authorities' when creating these schemes.

In general, the responsible authority is the relevant Secretary of State or appropriate Scottish or Welsh Ministers. With some exemptions for schemes relating to certain Scottish or Welsh public servants, the Act requires that HM Treasury consent to scheme regulations before they are made.

The Public Service Pensions Act 2013 relates to schemes established under the Act, which includes civil servants, the judiciary, local government workers, teachers, health services workers, fire and rescue workers, members of police forces and members of the armed forces. It also relates to new public body pension schemes and other statutory pension schemes which are connected to the newly established schemes. It does not apply to schemes in the wider public sector, or to any scheme which is excluded from being a public service pension scheme within the meaning of the Pensions Act 2004.

Each public service scheme has scheme regulations which set out details of the membership and benefits to be provided under the scheme. They also identify scheme managers, and provide for pension boards and scheme advisory boards to be established. The regulations form the scheme rules. A number of different types of people are involved with governing and administering public service schemes and scheme managers must comply with a number of legal requirements, including provide benefits information to members, publishing information on pension boards, keeping certain records, ensuring that pension boards members don't have conflicts of interest, establishing and operating adequate internal controls, and reporting late payment of contributions and any breaches to TPR as and when required.

All people involved in governing and administering public service schemes should have the appropriate skills and expertise. However, there's a specific legal obligation on pension board members to have knowledge and understanding of their scheme rules, their scheme's documented administration policies and pensions law.

Personal pension schemes

Personal pensions are a type of Defined Contribution pension scheme. They are provided by insurance companies (or other financial institutions) to help individuals save for their retirement. They are set up as contracts between the provider and the individual and there are no limits on the number of pension schemes an individual can have (although there are limits on the total amounts across all schemes that can be contributed).

A self-invested personal pension (SIPPs) is a type of personal pension arrangement which allows the member to choose how their scheme is invested. They offer much wider investment powers than are generally available for other personal pensions, including group personal pensions and are therefore classed as ‘investment regulated pension schemes'. A scheme is classified as investment regulated if at least one of the members (or someone connected to them) is able to influence how their own pension pot is invested. An occupational pension scheme with less than 50 members is also an investment regulated pension scheme if at least one of the members (or someone connected to them) is able to influence what the pension scheme invests in.

Collective Defined Contribution Schemes

The ability to establish CDC schemes was introduced in the Pension Schemes Act 2021 and confirmed the regulatory regime under which these schemes would operate, including authorisation and ongoing supervision. The authorisation regime commenced on 1st August 2022 and TPR could start receiving applications from this date.

These are a type of money purchase scheme which do not have solvency buffers. In a CDC scheme, savers do not build up individual pots to purchase an annuity at retirement. Instead, the assets are pooled, and benefits are paid from the fund from retirement age. The aim is to pay a target benefit, for example 1/80th of salary for each year of service but the level of income is not guaranteed and could be adjusted up or down depending on the schemes' funding position. These schemes allow savers to see their target benefit increase or decrease throughout their membership (even when being paid a pension).

CDC schemes must appoint a Scheme Actuary to annually value benefits on a best estimates basis and certify the sustainability of the scheme. Initially, only single or 2 or more connected employers will be allowed to set up a CDC scheme.

The authorisation criteria for CDC schemes are expected to be that the scheme:

  • is run by fit and proper persons
  • has a sound design
  • has sufficient administrative systems and processes in place to ensure that it is run effectively
  • has adequate systems and processes for communicating with savers and others
  • is financially sustainable with sufficient resources to meet costs of establishing, running and winding up the scheme without impacting savers benefits
  • has an adequate continuity strategy

Group personal pensions

Group personal pensions (GPPs) are pensions arranged by an employer for the benefit of its employees. Even though GPPs are arranged by the employer, the contract is held between the employee and the pension provider. Group personal pensions may have lower charges than individual personal pensions, because the provider may offer the employer a discount for the volume of policies. The employer may also choose to contribute to its employees' pensions, but there is no obligation that they do so, unless the GPP is being used for automatic enrolment purposes.

From October 2001 until October 2012, every employer with five or more staff was required by law to provide a stakeholder pension scheme. This requirement was removed by the introduction of automatic enrolment on 1 October 2012 which requires employers to enrol staff into a pension scheme that meets specific automatic enrolment rules.

Occupational pension plans are, for tax and regulatory reasons, normally set up under trust as a separate legal entity, subject to trust law which provides legally enforceable rights for the beneficiaries. Tax law doesn't set any restriction on the legal form for setting up a registered pension scheme. A pension scheme may be established by different methods, for example, by:
  • a trust
  • a contract
  • a board resolution
  • a deed poll

The Department for Work and Pensions' legislation imposes requirements on certain occupational pension schemes. In addition to the document establishing the scheme there will be a set of rules covering:

  • the type of benefits that are to be provided through the scheme
  • how these are to be funded
  • when they may be paid
  • to whom they may be paid
  • how funds may be invested.

A pension scheme is automatically registered either because:

  • it was set up and tax ‘approved' on 5 April 2006 and before 6 April 2006 didn't opt out of being a registered scheme, or
  • it is a deferred annuity contract purchased on or after 6 April 2006 to secure benefits provided under a registered pension scheme.

An application to register a pension scheme with HMRC can only be made if the pension scheme:

  • is an occupational pension scheme
  • is a public service pension scheme, or
  • has been set up by a person with permission from the Financial Conduct Authority (FCA) under the Financial Services and Markets Act 2000 to establish in the UK a personal pension scheme or a stakeholder pension scheme.

A registered pension scheme must have a scheme administrator - the scheme documentation must make provision for this. The scheme administrator is the person appointed in accordance with the scheme rules to be responsible for complying with the functions and responsibilities of a scheme administrator under the Finance Act 2004. To be registered with HMRC, the scheme documentation cannot entitle any person to unauthorised payments. When the scheme administrator applies for registration of the scheme they have to make a declaration to this effect.

The scheme administrator can be an individual or an organisation such as an employer or specialist pension administration company, or a mixture of both. More than one person can be the scheme administrator. If more than one person is appointed as scheme administrator, each is jointly and severally liable for any tax charges or penalties due on the scheme administrator. Administrators of UK pension schemes must be resident in the UK, or in an EU or wider EEA state.

Pension schemes set up under a ‘trust deed' must have trustees in place to provide oversight and compliance with the trust deed and rules. Trustees of occupational pension schemes are required to put in place and implement arrangements to provide that at least one-third of the trustees are member-nominated trustees (MNTs). MNTs are trustees who are nominated as a result of a process which must involve at least all the active members of the scheme or an organisation that adequately represents them; and all the pensioner members of the scheme or an organisation that adequately represents them; and are selected by some or all of the members of the scheme. The arrangements must include a nomination process and a selection process, and they must comply with other statutory requirements.

Trustees have specific responsibilities under pensions legislation, of which the main ones are:

  • preserving the assets of the plan and applying them and the income for plan members and beneficiaries (fiduciary responsibilities);
  • articulating a Statement of Investment Principles after taking appropriate advice and agreeing this with the sponsoring employer(s);
  • appointing an investment manager or managers and delegating to them the day-to-day management of the investments of the plan;
  • monitoring the implementation of the Statement of Investment Principles, including ensuring that restrictions on self-investment in the sponsoring company are met;
  • appointing the scheme auditor;
  • ensuring requirements are met regarding the annual audit of the plan and the timely publication of the audited annual report and accounts;
  • appointing the scheme actuary;
  • ensuring that a full actuarial valuation is carried out every three years and that actuarial reports are prepared every year;
  • Putting in place a recovery plan if the reports show a deficit;
  • Appointment of legal advisors;
  • the disclosure of certain information to plan participants such as conditions of membership, individual rights, annual benefit statements, the identity of trustees and advisors, the funding position of the plan, the Statement of Investment Principles, etc.;
  • developing a Statement of Funding Principles and determining the assumptions for the calculation by the actuary of the technical provisions;
  • establishing a Schedule of Contributions, obtaining the agreement of the sponsoring employer(s) and monitoring the compliance of employers with the Schedule;
  • establishing an internal disputes procedure.
  • Notifying TPR of certain events, breaches and providing TPR with a scheme return.
Trustees are required to have adequate knowledge and understanding to fulfil their responsible role and to keep up their knowledge through regular training.

The management of contribution and benefit administration may be undertaken by employees of the trust or it may be contracted out by the trustees to a pension management company, third party administrator or financial institution.

Plans may also be insured, whereby the management of the plan contracts with an insurance company either to provide pension benefits or to invest the contributions. Large employers' plans tend to be self-administered by the trust, whereas small employers' plans are frequently insured.

From October 2001 until October 2012, every employer with five or more staff was required by law to provide a stakeholder pension scheme. Stakeholder pensions are very similar to personal pensions but they must meet specific criteria set by the government as to transfers and fees. This requirement was removed by the introduction of automatic enrolment on 1 October 2012 which requires all employers to enrol staff into a pension scheme that meets specific automatic enrolment rules and requirements.

The reforms required employers to automatically enrol eligible workers into a qualifying workplace pension scheme and make a minimum contribution. The automatic enrolment duties were staged between October 2012 and February 2018 by employer size, starting with the largest employers. Workers are eligible provided they: are aged at least 22 and under State Pension age; earn over £10,000 per year in 2022/23 (these thresholds are reviewed annually); normally work in the UK and do not currently participate in a qualifying workplace pension scheme. Current legislation specifies total minimum contributions are 8 per cent, of which at least 3 per cent must come from the employer.

Through automatic enrolment almost 11 million people have been enrolled into a pension scheme by over 1 million employers. The government is keen that as many people as possible can benefit from their own long-term saving, topped up with employer and government contributions, to give them greater financial security in retirement. In 2017 the government conducted a review of automatic enrolment to consider the success of the policy to date, and explore ways in which it can be further developed. The review gathered evidence on groups such as people with multiple jobs who do not qualify for automatic enrolment in any single job. It also considered how the growing numbers of self-employed people can be helped to save for their retirement. A number of recommendations were made around the scope of those eligible for automatic enrolment, and the earnings thresholds, as well as contribution rates. The UK government is considering the recommendations and the extent to which they may be implemented, and when.

Making contributions

Any employer or member of a registered pension scheme may make contributions to that registered pension scheme.

Other persons
A person other than a member or the employer of a member may make a contribution to a registered pension scheme in respect of a member of that scheme. A person can be an individual, a corporate body or other legal entity. For tax purposes, any contribution that is not an employer contribution will be regarded as if it had been made by the scheme member. This means the member should receive any tax relief due on the contribution, not the person who made the contribution.

Tax relief
Contributions that are paid to a registered pension scheme may receive tax relief. The tax relief may be through the relief at source (RAS) mechanism, or through a net pay arrangement operated by an occupational pension scheme.

There is a limit on the amount of tax relief a member may receive on contributions paid by them, or other persons in respect of them. Any contributions over the tax relief limit may still be paid into the pension scheme, but no tax relief is due on the excess. If any portion of contributions that obtain tax relief result in the annual allowance being exceeded, there might be a tax charge on the member for exceeding the annual allowance. The current annual allowance for the 2022-23 tax year is £40,000, therefore members can contribute 100% of their earnings up to a maximum of £40,000 and receive tax relief.

Unlike for scheme members there is no set limit on the amount of tax relief that an employer may receive in respect of its contributions. However, tax relief is not automatic; it will be considered under the normal tax rules as a business expense. There are also special rules for where a large one-off contribution is made. These special rules allow tax relief to be spread over several years rather than be given in full in the year that the contribution is actually paid.

The UK government has set minimum levels of contributions that must be paid into workplace pension schemes by employers and members. The minimum total contribution to the scheme is usually based on the member's ‘qualifying earnings', which are earnings from employment, before income tax and National Insurance contributions are deducted, that fall between a lower and upper earnings limit set by the Government. Under automatic enrolment legislation, employers must pay some of the minimum total contribution. If an employer doesn't pay all of the minimum total contribution, the member will be required to make up some of the difference. The Government also contributes by giving tax relief on the contributions.

As explained above, the minimum contribution is 8% of which at least 3% must be paid by the employer. However the employer and member can choose to pay more than the minimum contributions if they wish. All automatic enrolment pension schemes with contribution rates that would be below the minimum amount after the rate increases, must apply the higher rates in order to remain a qualifying scheme. If a pension scheme does not increase its minimum contribution levels in line with the legal requirements, it will no longer be a qualifying scheme for existing members and cannot be used for automatic enrolment. Pension scheme trustees and providers, and payroll and software providers, should ensure their products support this legal requirement of automatic enrolment.

Sources of funds

Employee contributions

Employer contributions


Other sources of funds


Methods of financing

Asset management

Acquisition and maintenance of rights

Waiting period

Vesting rules

Preservation, portability, transferability

Retirement benefits

Benefit qualifying conditions

Benefit structure / formula

Benefit adjustment



Defined benefit occupational pension plans
A key objective for trustees of defined benefit pension schemes is paying the promised benefits as they fall due. The ability to fulfil this important aim is enhanced if the employer supporting the scheme is successful. Most defined benefit (DB) schemes need to meet the statutory funding objective (see Pensions Act 2004), which is to have sufficient and appropriate assets to cover their technical provisions (accrued liabilities). DB scheme trustees should work closely with the sponsoring employer to agree a:
  • statement of funding principles that sets out how the statutory funding objective will be met
  • schedule of contributions that is consistent with these principles
  • recovery plan if the statutory funding objective isn't met

If the assets are insufficient to cover the technical provisions, the trustees must put in place a recovery plan, with a view to ensuring that the scheme's funding objectives are met over a period of time.

In all cases the trustees must produce a schedule showing the rates of contributions payable to the scheme by or on behalf of the employer and scheme members who are accruing benefits, and the dates by which those contributions are payable.

Trustees of defined benefit schemes should commission a full actuarial valuation at least every 3 years to assess the funding level of their scheme. The actuarial valuation must incorporate the actuary's certification of the technical provisions calculation and the schedule of contributions. The valuation must include the actuary's estimate of the scheme's solvency. The trustees must choose a method for calculating the scheme's technical provisions, i.e. the value of benefits accrued to a particular date and take advice from the actuary on the differences between the methods and their impact on the scheme. Trustees must arrange to have audited accounts or an auditor's statement within seven months of the end of the scheme's financial year.

Protection of Assets

Financial and Technical Requirements / Reporting


Requirement to report breaches of law
Breaches of the law which affect pension schemes should be considered for reporting to The Pensions Regulator. The decision whether to report requires two key judgements:
1. is there reasonable cause to believe there has been a breach of the law;
2. if so, is the breach likely to be of material significance to the Pensions Regulator.

Not every breach needs to be reported. There is a wide range of reporters that have a duty to notify the regulator of breaches of law:

  • trustees and their advisers and service providers (including those carrying out tasks such as administration or fund management);
  • managers of schemes not set up under trust; and
  • employers sponsoring or participating in work-based pension schemes.

The requirement to report breaches of law applies to occupational and personal pension schemes (including stakeholder schemes). All reporters should have effective arrangements in place to meet their duty to report breaches of the law. Breaches should be reported as soon as reasonably practicable and failure to report when required to do so is a civil offence.

Standards for service providers

The scheme actuary
The pension scheme trust deed and rules outline what trustees can and cannot do with regards to the scheme they have oversight of. Pensions legislation specifies additional requirements of trustees. In particular the Pensions Act 1995 and its associated regulations set out additional responsibilities and duties that a trustee must carry out and specifies penalties for failure to comply. One important responsibility is that trustees of Defined Benefit Schemes must appoint a named individual actuary (the Scheme Actuary). The actuary specialises in evaluating and assessing risks and must generally be fellows of the Institute and Faculty of Actuaries.

Section 47 of the Pensions Act 1995 sets out the requirements for every pension scheme to have an individual or a firm appointed by the trustees as ‘auditor'. The trustees of most pension schemes need to get a statement every year from the scheme auditor confirming whether or not, in the auditor's opinion, contributions have been paid in line with the scheme's payment schedule or schedule of contributions. If the statement is negative or qualified, the scheme auditor must give reasons why.

For many schemes, the scheme auditor will also need to audit the scheme accounts. The accounts usually form part of the trustees' annual report about the scheme.

The scheme auditor will audit the scheme accounts. The accounts must show a true and fair view of:

  • the financial transactions of the scheme during the scheme year;
  • the amount and disposition of the assets at the end of the scheme year; and
  • the liabilities of the scheme, other than the liabilities to pay pensions and benefits after the end of the scheme year.

The accounts must include a report saying whether, in the scheme auditor's opinion, the accounts show a true and fair view and whether they contain specific information set out in law, including a statement that they have been prepared in accordance with the most recently applicable version of the Statement of Recommended Practice (SORP) 'Financial Reports of Pension Schemes' and to indicate any material departures from its guidance. The SORP indicates best practice in accounting and financial reporting by pension schemes and supplements the general accounting principles set out in FRS102.

Trustees must approve the audited accounts, and the scheme auditor must sign the report. This must be done within seven months of the end of the scheme year.


Winding up / Merger and acquisition

The Pensions Regulator expects that schemes already winding up should complete at least the key activities as soon as possible and within two years, and schemes commencing winding up should complete at least the key activities within two years.

The key activities for DB schemes are:
  • serving a debt on the employer
  • securing pensioner benefits
  • identifying the individual remaining (non-pensioners) share of assets and obtaining terms from an insurer to secure a guaranteed pension
  • conducting a final actuarial valuation
  • issuing option letters to non-pensioners or details of insured benefits, as appropriate.

The key activities for DC schemes are:

  • receipt or recovery of all member / employer contributions due from the employer
  • establishing that all pensioner members have annuity policies set up in their own name providing the correct scheme benefits
  • production and sign off of final accounts accounting for and reconciling all assets/cash held in trustee bank accounts and investment manager / provider accounts
  • establishing that all other beneficiaries have been identified, fund values determined, secured and statements issued
  • providing options to members.

Bankruptcy: Insolvency Insurance / Compensation Fund

The Pension Protection Fund (PPF)
The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation. The Pension Protection Fund is a statutory fund run by the Board of the Pension Protection Fund, a statutory corporation established under the provisions of the Pensions Act 2004. To help fund the Pension Protection Fund, compulsory annual levies are charged on all eligible schemes. Investing the assets of the Pension Protection Fund effectively is a further key function of the organisation. The Pension Protection Fund is also responsible for the Fraud Compensation Fund - a fund that will provide compensation to occupational pension schemes that suffer a loss that can be attributable to dishonesty.

The Pensions Act 2004 sets out the conditions that must be met for the Pension Protection Fund to assume responsibility for a scheme.

In high level terms, in order for the Pension Protection Fund to assume responsibility for a scheme, the scheme must satisfy the following key criteria:

a) the scheme must be a scheme which is eligible for the Pension Protection Fund;
b) the scheme must not have commenced wind up before 6 April 2005;
c) an insolvency event must have occurred in relation to the scheme's employer which is a qualifying insolvency event;
d) there must be no chance that the scheme can be rescued;
e) there must be insufficient assets in the scheme to secure benefits on wind up that are at least equal to the compensation that the Pension Protection Fund would pay if it assumed responsibility for the scheme.

Where a qualifying insolvency event occurs in relation to the employer of an eligible scheme then an assessment period will automatically begin.

Disclosure of information / Individual action

Defined benefit occupational pension plans
Trustees of DB schemes must make certain information available to members, prospective members and other people entitled to benefits under the scheme. The trustees must also produce an annual report and have procedures in place for resolving disputes with scheme members.
The trustees of most pension schemes have to make information available about the scheme, including how it is run and the benefits it provides. They must make information available to:
  • members - including active members, pensioner members and deferred members
    prospective members
    husbands, wives or civil partners of members and prospective members
    other people entitled to benefits under the scheme
    independent, recognised trade unions.

These people can usually ask for general information about the scheme and the benefits it provides, free of charge, once in any 12-month period. Trustees must give this information to new members automatically when they join the scheme.

Trustees also need to provide information to individuals on other occasions either automatically or if they request it, e.g. when a member retires, dies or leaves the scheme.

Sometimes scheme events will trigger the need to give information, e.g. trustees must send out certain information when a scheme starts to wind up or members are to be transferred to another scheme without their consent.

Trustees must make specific items available on request. These include:

the scheme's trust deed and rules, although you only need to disclose those parts that are relevant to the individual's membership or the membership the union represents

  • actuarial valuations
  • the scheme's schedule of contributions
  • the scheme's statement of investment principles
  •  the trustees' annual report and accounts.

Trustees must let members know that the scheme's annual report and accounts are available on request within 7 months of the end of each scheme year. The trustees' report should describe how the scheme has been managed and any changes which have happened in the year. It must include, amongst other things:

  • a copy of the audited accounts and auditor's statement
  • details of the trustees and how they are appointed and removed
  • details of the scheme's professional advisers and fund managers
  • an investment report, including how the investments have performed
  • the number and breakdown of scheme members
  • the number of other people entitled to benefits under the scheme
  • details of pension increases and how they are worked out
  • an address for enquiries
  • the actuary's certification of the adequacy of the schedule of contributions.

Trustees must have a formal arrangement in place for considering complaints between the trustees and:

  • members
  • prospective members
  • someone entitled to benefits following a member's death
  • individuals who were recently in one of these categories
  • individuals who claim to be in one of these categories.

Trustees must tell scheme members about this ‘internal dispute resolution' (IDR) procedure. They must also tell other individuals who would be entitled to make a complaint under it. Trustees should normally make decisions on disputes within four months and review the scheme's IDR procedure regularly to ensure it is working effectively.

Other measures

To qualify for tax concessions, the majority of UK pension schemes are registered with HMRC. Registered schemes are subject to requirements that impact on the type and level of benefits they can provide.

In the tax year 2022-23 UK taxpayers will receive tax relief on pension contributions of up to 100% of earnings or a £40,000 annual allowance, whichever is lower. From April 2020 the £40,000 annual allowance was also reduced for individuals with an income of over £240,000, including pension contributions. Any contributions made over this limit will be subject to Income Tax at the highest rate paid by the individual. In some circumstances unused allowances can be carried forward but there are some exceptions. If a pension scheme member accesses money from their defined contribution pension, this can trigger a lower annual allowance known as the Money Purchase Annual Allowance or MPAA. The annual allowance for individuals with defined contribution schemes in drawdown reduces to £4,000.

A lifetime allowance puts a top limit on the value of pension benefits that an individual can receive without having to pay a tax charge. The lifetime allowance is £1,073,100for the tax year 2022-23. Any amount above this is subject to a tax charge of 25% if paid as pension or 55% if paid as a lump sum.

Taxation of employee contributions

Taxation of employer contributions

Taxation of investment income

Taxation of benefits

HM Revenue & Customs
HM Revenue & Customs Pension Schemes Service Responsible for technical tax issues relating to occupational pension plans.
Pension Schemes Services
HM Revenue and Customs
Tel.: +44 (0)300 123 1079

The Pensions Regulator (TPR)
The Pensions Regulator (TPR) is the public body that protects workplace pensions in the UK. TPR works with employers and those running pensions so that people can save safely for their retirement.
The Pensions Regulator
Napier House
Trafalgar Place

Financial Conduct Authority (FCA)
The Financial Conduct Authority is the conduct regulator for 56,000 financial services firms and financial markets in the UK and the prudential regulator for over 18,000 of those firms.
Financial Services Authority
25 The North Colonnade Canary Wharf
E14 5HS
Tel.: +44 (0)207 066 1000

Pension Protection Fund (PPF)
The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.
The Pension Protection Fund
12 Dingwall Road
Tel : +44 (0)345 600 2541
[email protected]

Prudential Regulatory Authority
The Prudential Regulation Authority (PRA) was created as a part of the Bank of England by the Financial Services Act (2012) and is responsible for the prudential regulation and supervision of around 1,500 banks, building societies, credit unions, insurers and major investment firms. The PRA's objectives are set out in the Financial Services and Markets Act 2000 (FSMA). The PRA has three statutory objectives:

1. general objective to promote the safety and soundness of the firms it regulates;

2. An objective specific to insurance firms, to contribute to the securing of an appropriate degree of protection for those who are or may become insurance policyholders; and

3. A secondary objective to facilitate effective competition.

Pensions Ombudsman
Official to whom complaints may be made by plan members and dependants about the administration of pension plans. The Ombudsman has authority to rule on disputes between plans and their members.
Pensions Ombudsman
10 South Colonnade
Canary Wharf E14 4PU
United Kingdom
Tel.: +44 (0)20 7630 2200


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