In this series we delve into the XpertHR reference manual to find essential
information relating to one of our features.
This month’s topic…
State retirement age
Women reach state retirement age at 60 and men at 65. Between 2010 and 2020
the state retirement age for women will rise gradually, and from 6 April 2020
it will have reached parity with men at 65 (Pensions Act 1995, section 126).
The rise in state retirement age will not affect women who were born before 6
Considerable legislation regulates the administration of occupational
pension schemes. Specialist advice and assistance should always be sought
before an occupational pension scheme is set up. Be aware of the following:
– Employers may not compel their employees to belong to an occupational
Some schemes require contributions from employees (contributory pension
schemes) and others do not (non-contributory pension schemes).
Occupational pension schemes are run by trustees who hold assets on trust
for the scheme members. Discretion in how to run the scheme is conferred upon
Members of occupational pension schemes sometimes pay additional voluntary
contributions (AVCs). These are sometimes set up under the original scheme, or
under free-standing additional voluntary contribution schemes (FSAVCs).
The amount to which a retiring employee is entitled can be calculated in a
variety of ways. The rules of the pension scheme will set out the method that
has been adopted. A common method is to calculate the amount due with reference
to the leaver’s final salary and his or her length of pensionable service.
Another method is to calculate the amount with reference to the amount of money
paid into the scheme by the leaver.
Occupational pension schemes sometimes provide death-in-service benefits.
These are usually in the form of a lump sum of about four times pensionable
– Occupational pension schemes and sex discrimination
In the past few years case law and legislation has evolved that relates to
sex discrimination and occupational pensions. This was kick-started by the
decision of the European Court of Justice in Barber v Guardian Royal Exchange
Assurance Group (1990), IRLR 240, ECJ, to the effect that benefits under
occupational pensions constitute pay within the meaning of Article 141 of the
The significance of this decision was that it meant that the equal pay
legislation must apply to occupational pensions.
Employees who do not have access to occupational pensions will often pay
into a personal pension because of the low level of the State Pension.
Individuals earning above a certain limit cannot make contributions to their
personal pensions from income above the limit. Employers can offer personal
pensions on a group basis as an alternative to occupational pension schemes
(Group Personal Pensions).
These are based on arrangements entered into between the employer and a
pension provider, and are administered by the pension provider.
Stakeholder pensions are a new form of personal pension regulated by the
Welfare Reform and Pensions Act 1999. They are designed to meet the needs of
people who do not have access to an occupational pension scheme. The schemes
are run by commercial pension providers.
Key features of stakeholder pensions are that members must be able to
transfer in to, or out of, the scheme without penalty, and contributions may be
as low as £20.
Since 8 October 2001, employers (other than those that are exempt) have been
required to designate schemes and make them available to employees. Stakeholder
pension schemes must be made available to employees who earn more than the
lower limit for national insurance contributions.
An employer is exempt from the requirement to provide a stakeholder pension
scheme to its employees if it meets any of the following criteria:
– It has fewer than five employees, including company directors and those
who do not meet the conditions to have access to a stakeholder pension scheme.
This does not include workers who are not employees
– It offers employees an occupational pension scheme that is available to
all staff within their first year of service
– It offers a contributory personal pension scheme to all employees eligible
to join a stakeholder pension scheme (the contributions must equal at least 3
per cent of basic pay). Such a scheme must contain no penalties for early
release and the employer must undertake to administer contributions to the
scheme. If the employee makes contributions, they must be no higher than the
– It gives some employees access to a personal pension scheme as set out
above, and the remainder access to an occupational pension scheme as set out
above. An employer need not offer a stakeholder pension scheme to all its
employees. Those who do not qualify are:
– Employees who have less than three months continuous service
– Employees who are members of the occupational pension scheme or who have
chosen not to join it
– Employees who are not eligible for the occupational pension scheme because
they are too young or too old
– Employees who have earned less than the national insurance lower earnings
limit for one or more weeks within the past three months
– Employees who cannot join a stakeholder pension scheme because of Inland
Revenue restrictions (for example the employee does not normally live in the
The duties of an employer that is required to operate a stakeholder pension
scheme include the following:
– It must designate a scheme from the list of registered schemes held by the
Occupational Pensions Regulatory Authority
– It must consult with (but not advise) those employees who qualify for the
scheme, or their representatives, about the scheme that it proposes to
– It must inform the scheme provider that it has chosen that scheme, and
keep the provider informed of details such as the employees’ contribution
records and the employer’s contribution amounts
– It must inform the relevant employees of the name and address of the
provider, and contact details for a named representative
– It must allow the provider to have reasonable access to the workplace
– It must make arrangements to deduct employee contributions and send them
to the scheme provider within strict time limits (19 days after the end of the
month in which the deductions were made)
– It must make payroll deductions if requested and give employees written
information about payroll deduction arrangements.
Employees can make fixed deductions or a percentage of their net pay.
Contributions to stakeholder pensions are voluntary contributions, so
statutory deductions such as tax and national insurance must be made first.
– It must keep records of payments made to the provider.
Legislation Pensions Act 1995
Sex Discrimination Act 1975
Equal Pay Act 1970
Occupational Pension Schemes (Equal Access to Membership)
Amendment Regulations 1995 SI 1995/1215
Occupational Pension Schemes (Equal Treatment) Regulations 1995 SI 1995/3183
Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000
Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000
(Amendment) Regulations 2002 SI 2002/2035
Social Security Pensions (Low Earnings Threshold) Order 2003 SI 2003/324.
This is an extract from the Pay and Benefits chapter of the Xpert HR
employment law reference manual. The original chapter author was Akua Reindorf.
Forthcoming Law Reports Legal Guidance News
Action point checklist
– Ensure that you (if not exempt)
offer either an occupational pension scheme or a stakeholder pension scheme to
– Take specialist advice on how to run and administer any
Questions and answers
Are employers obliged to offer an occupational pension
No, there is no legal obligation to operate an occupational
pension scheme, although many employers choose to do so. A scheme can be set up
to require contributions from employees, or can be non-contributory. Because
there is so much legislation regulating the administration of an occupational
pension scheme, specialist legal advice should be sought before setting one up.
Is it permissible for an employer
to offer a pension scheme only to full-time employees?
No, this would be unlawful under the Part-time Workers
(Prevention of Less Favourable Treatment) Regulations 2000 unless the exclusion
of part-timers could be objectively justified. Furthermore, because equal pay
legislation applies to occupational pensions, the exclusion of part-timers from
an occupational pension scheme would be likely to constitute indirect sex
discrimination against women. Women may also claim parity with men as regards
to benefits under an occupational scheme and the retirement ages in
occupational pension schemes should be the same for men and women performing
the same job.
What options are open to employees
if their employer does not offer an occupational pension scheme?
Employees without access to an occupational pension scheme can
choose to pay into a personal pension. Employers can also offer personal
pensions on a group basis (Group Personal Pensions) as an alternative to an
occupational pension scheme. Alternatively, most employees are now entitled to
a stakeholder pension scheme if their employer does not provide an occupational
What is a stakeholder pension scheme?
Stakeholder pensions were introduced under the Welfare Reform
and Pensions Act 1999 and are designed for employees who do not have access to
an occupational pension scheme. Since 8 October 2001, employers (other than
those that are exempt) have been required to designate schemes and make them
available to qualifying employees.
Are employers legally obliged to
make stakeholder pension schemes available to all employees?
Employers with more than five employees that do not provide an
occupational pension scheme or Group Personal Pension for all employees are
required to designate a stakeholder pension scheme. Employers must designate a
scheme from a list of registered schemes held by the Occupational Pensions
Barber v Guardian Royal Exchange Assurance Group, , IRLR
Bilka-Kaufhaus GmbH v Weber von Hartz, , IRLR 317 ECJ
Preston and others v Wolverhampton Healthcare NHS Trust and
others, (No2) , IRLR 237 HL