Pensions Industry - Origins and Overview

Origins and Overview

Some seventeenth century employers started to offer ex gratia pensions to chosen employees as a reward for long service. These were usually on an unfunded basis, with the amounts being subject to the whim of the employer and the ability of the workforce to provide sufficient profits to enable the employer to pay. The whole system was open to abuse by the employer since the employee had nothing more than an expectation that the benefit would continue. On an individual basis, it was common practice for a successor in a position to continue to pay a proportion of his current salary to his predecessor, until that person died. Samuel Pepys is a well known example. This was a direct transfer of funds from one generation to another. It worked well for the better off employees, but created a heavy burden for lower paid employees who needed all their earnings to live. 

The State only became involved in the welfare of the poor in the Elizabethan era (Elizabeth I), when the welfare of the poor became a national concern.  Legislation was passed through the Pool Laws of 1597 and 1601, which made local borough responsible for providing for the poor within their own areas.

The first occupational pension scheme was set up for the benefit of Customs and Excise Officers. It operated on a ‘pay as you go’ unfunded system, which meant that the contributions collected from the employer and the employees were paid out almost immediately in pension benefits to other retired members. This scheme set the precedent for the initial design of all occupational pension arrangements. Throughout the eighteenth century it was gradually extended and altered to include other civil servants. The Civil Service Pension Scheme was historically the model for HMRC approval, and even today the level of benefits offered in defined benefit occupational schemes are strongly influenced by it. 

Even though employers began to introduce occupational schemes for some of their senior employees, few employers offered occupational pensions to all their workers until mid to late nineteenth century when the Industrial Revolution was really underway. One of the first such employers to offer a scheme to all their employees was the Gas Light and Coke Company, shortly followed by the independent railway companies. 


1. References

This section of study, The Origins and Overview of Pensions can be found in the relevant pages of the Retirement Provision Certificate Study Manual 2023

2.Think about it

Pensions crisis?

Currently we are all very aware of the so-called 'pensions crisis': the issue of whether there will be enough money in pension funds to support the retirement of today's working population. This issue has arisen mainly due to our increasing life expectancy, but has also been precipitated by volatile stock market returns. Take a little time now to explore the issue in a bit more detail and think about any implications it might have for you as an individual, and in your working role.

In the Resource Pages there is a summary of key features of recent legislation.

Work-based pensions are being constantly updated and reformed. Various government websites publish details of major pension reforms as and when they arise. However, there is no one publicly available website that contains a definitive list of ongoing pension reforms. There are two useful organisations that carry out and publish research on an ongoing basis:

The most ideal PPI website landing page we would suggest is the “About us” page, which sets out what is on the website.

https://www.pensionspolicyinstitute.org.uk/about-us/

The Pensions Policy Institute (PPI) was launched in January 2002 by the Pension Provision Group, who recommended that an organisation independent of government needed to lead responsibility for accumulating, analysing and publishing information about current and future pension provision and its implications for future pensions policy. They carry out original research and compile existing information to inform the analysis of the whole pensions policy framework.

You can visit their website to find out more about their current work. If you find it useful, you might like to bookmark it for future reference.


3. Fact Finding

STEP 1 - Visit the GOV.UK website by clicking the logo here: 



STEP 2  - Follow the 'Plan your retirement income' link and click on 'Pensions from the Government' menu option.

STEP 3  - Now, use what you've learned from this section, and the GOV.UK website, to try and answer the following questions: 


  1. If someone reaches State Pension Age before April 2016, how many qualifying years do they need to have before they receive a full Basic State Pension?
  2. And if someone reaches State Pension Age after April 2016 how many qualifying years do they need to qualify for a State Pension?
  3. What will be the State Pension Age for a male born on 22 June 1966? (see the calculator)
  4. What are the two elements that make up Pension Credit?

 

Check your Answers

 

4. Test

You can now check your knowledge by a short test.  Once completed then check your answers against those given.

Origins and Overview Test

Origins and Overview Test Answers