This paper outlines the three tiers of pension provision in the UK and examines the shift in emphasis from public to private sector provision over the last twenty years. Up to the 1980s the second and third tiers of pension support consisted of SERPS and defined benefit occupation schemes. The introduction of personal pensions in the late 1980s has eroded the importance of SERPS and has illustrated that funded private sector schemes are viable as pension providers.
The paper reports that 80% of the working population has access to a second or third tier scheme, though whether this represents sufficient depth of coverage is more difficult to ascertain. In the case of occupational pensions, contribution rates are determined by actuaries. In the case of personal pensions the contribution rates are determined by the individual savers and there is evidence that current contribution rates are insufficient to generate an adequate pension. In which case the individual will need to remain in the labour force and postpone retirement until the accumulated funds are sufficient to generate the required pension.
The paper also analyses the impact of the proposals for stakeholder pensions outlined in the Government Green Paper (1998) 'Partnership in Pensions' on future pension provision. The paper argues that stakeholder pensions look like a superior alternative to personal pensions and are likely to drive the more complex and expensive personal pension out of the market.
However other savings products such as ISAs also appear attractive tax-efficient savings vehicles, without the restriction that the accumulated savings be taken as a pension. Individuals on low incomes may be advised to take out ISAs in preference to stakeholder pensions.View the full article (PDF, file 113KB)