31/8/2007 - Pensions Act 2007

The Pensions Act 2007, containing significant State Pension reform, has received Royal Assent and become law.

On 26th July 2007, the Pensions Act 2007 received Royal Assent. The main changes made by the act are:

State Pension Reform

The state pension retirement age for men and women is to be increased by one year per decade to be 68 by the year 2046.

From 2010, the number of years of national insurance (NI) payments needed to qualify for a state pension is to be decreased to 30 years (currently 44 years for men and 39 years for women).

From 2012, basic state pensions are to be re-linked to earnings rather than inflation.

From 6th April 2010, people with caring responsibilities will be granted weekly NI contribution credits and will be allowed to accrue the Basic State Pension and additional State Second Pension (S2P).

During the tax year 2010/11, the State Second Pension will be restructured so that all earnings between the low earnings limit and the upper earnings limit accrue additional pension at a rate of 10%.

Contracted Out Rights

It is now possible for schemes to convert a guaranteed minimum pension (GMP) into ordinary scheme benefits (this is not permitted in money purchase schemes however). HMRC should be provided with details of each affected member before the conversion date. After conversion, a member´s benefit must be at least as actuarially valuable as their rights prior to conversion.

From 2012, contracted out rights for money purchase occupational and personal pension schemes will be abolished. Members of these schemes will be automatically contracted back into the State Second Pension.

Personal Accounts Delivery Authority

An independent body is to be established that will undertake the preliminary work necessary for delivery of the personal accounts scheme. It will provide advice to the government and devise a commercial strategy for the personal accounts scheme.

Financial Assistance Scheme (FAS)

There will be an improvement of benefits provided by the FAS. The benefit due to a member will be at least 80% of his expected pension irrespective of his normal retirement age. There is a cap of £26,000.