An individual at retirement with a pension fund or a lump
sum can buy a pension
annuity or purchase
life annuity. There are a number
of factors relating to health or lifestyle that mean an individual
could benefit from an enhanced annuity, resulting in a significant
increase in the pension income or income from a lump sum in
If the individual or their partner are currently ill or have
suffered illness in the past or are a smoker or are overweight,
then they could benefit from enhanced rates if these conditions
have reduced their life expectancy relative to the mortality tables.
For a family with an elderly relative
that now requires 24 hour care after suffering an illness,
term care costs for a nursing home could be partially
funded, after any contributions by Local Authority
or NHS funding, by an immediate
In addition life companies also consider the lifestyle and
location of the annuitant. In particular, it the annuitant
has been a manual worker for most of their working life of
live in a particular part of the country, an enhanced annuity
could be payable. No enhancements of
the income could be applied if a With
Profits annuity or drawdown option is taken instead
of a conventional pension annuity.
If an individual suffers from an illness they can use the pension fund to buy an annuity on retirement that can include an enhancement and it is possible to use an open market option to search for the highest pension annuities. If retirement is due to ill health an impaired health annuity could be purchased. Learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised annuity quote offering guaranteed rates.
For an occupational pension scheme such as a defined benefit
final salary or public
services scheme there will be particular rules set out
by the scheme trustees as to the eligibility of scheme members.
This could include a waiting period before joining, indicate
the type of employees that can join the scheme, the accrual
rate applied, the level of benefits, retirement age and
whether it is non contributory or contributory
scheme and if so the level of personal contributions.
Large occupational pension schemes could have different retirement
benefits for different types of employees such as managerial,
white collar or blue collar but legislation has changed to
ensure discrimination does not occur. For example, the Sex
Discrimination Act 1986 prevents an employer imposing a different retirement
age for men and women.
In the case of Barber v GRE (1990) when considering equalisation
the European Court of Justice established that the equal-pay-for-equal-work
rule Article 119 (now Article 141) of the Treaty of Rome should
cover employer pension schemes, enforcing the principle of
no discrimination on the grounds of sex. The Barber Judgment
applies to all retirement benefits earned after 17 May 1990
and is further endorsed by regulations made in the Pensions
Act 1995 for the equal treatment between the sexes.
Where the employees have the opportunity to join an existing
company group pension arrangement, this is known as an employers
pension scheme. Since the introduction of stakeholder
pensions from 6 April 2001, all companies with five or
more permanent employees that do not have an existing pension
arrangement must have establish either a group stakeholder
pensions or group
personal pension by the 8 October 2001.
This will continue to apply after this date if a company
that is currently exempt from establishing group stakeholder
pensions subsequently fails to meet the requirements. If a
company does not comply with these requirements, the Occupational
Pensions Regulatory Authority (OPRA)
can impose fines of up to £50,000. The employer can
offer an occupational pension scheme, such as a final
salary pension, a small self administrated scheme (SSAS)
or a contracted out money purchase scheme (COMPS)
as examples of a defined
These are usually a contributory scheme but occasionally
the employer offers a non
contributory scheme where the scheme member is not required
to make personal contributions, but will still accumulate
retirement benefits over time. If the employer has a group
personal pension or stakeholder pensions often the employer
will match the employees contributions up to a certain percentage.
The most frequent reason for using a qualifying life assurance
policies, such as an endowment policy, is for investment purposes.
Investment will be over a specified period of time and purpose,
such as school fee planning, or to repay a mortgage where
investment and protection is required and the plan must be
established on a joint life basis.
Another advantage for choosing a qualifying policy is the
tax treatment as if affects the policyholders funds. The underlying
assets are taxed at a rate of 20% on savings income, capital
gains tax (CGT) and non-savings income are taxed at 22% and
dividends are received net.
Qualifying plans can therefore be tax advantageous, although
not to the degree of individual
savings accounts (ISA), for higher rate taxpayers as there
is no tax liability at maturity. Qualification will depend
on the following:
||The plan must have a term of at least
||The minimum life assurance cover must
be 75% of the total premiums payable throughout the term.
If the policyholder wants to encash the policy, this can
be achieved by surrendering, or selling the policy on the
traded endowment policy (TEP)
market. The advantage of the TEP market is that for any with-profits
policy, usually a buyer will pay a higher value for the policy
than the value received on surrender from the provider. Therefore
the parties should seek advice from an independent
financial adviser (IFA) before encashing the endowment
In terms of an occupational pension scheme the European Court
of Justice has ruled that since the Barber Judgment of 17
May 1990 men and women must have equal rights to join employer
pensions and that occupational pensions earned from service
must be equal for men and women.
The Barber Judgment established the equal-pay-for-equal-work
Article 119 (now Article 141) of the Treaty of Rome that if
an occupational pension scheme does not contain an equal treatment
rule shall be treated as including one. This means that if
a scheme member of opposite sex is employed in similar work,
or work of equal value, then the benefits to both sexes must
be the same, unless the scheme
trustees can prove that the inequality is due to a factor
that is not sex related.
Regulations made under the Pensions Act 1995 have required
occupational pension schemes to treat the sexes equally since
January 1996. Also, under section 126 of the Pensions Act
1995 the retirement age for the state
basic pension will be equalised to 65 for both men and
Court of Justice
As an institution of the European Union the European Court
of Justice (ECJ) has jurisdiction in disputes involving member
states, community institutions, businesses and individuals.
The ECJ sits in Luxembourg and consists of sixteen judges
appointed by the member states by mutual agreement and supported
by six advocates general. Since 1989, the court of first instance
assists with cases and appeals to the ECJ.
The European Court of Justice has certain primary judicial
responsibilities being; the interpretation of the treaties
for establishing the European Community; to determine if any
act or omission by the European Commission, the Council of
the European Union, or any member state constitutes a breach
of community law; and to decide on the validity and meaning
of community legislation. The ECJ has contributed to determining
the European Community as a community governed by the rule
of law of which there are two rules; the direct effect of
community law in the member states; and the primacy of community
law over national law.
For example, in the case of Barber
v GRE (1990) concerning the fundamental rights of individuals
on equal pay for men and women, the ECJ ruled that article
119 would also apply to an occupational
pension scheme and that this would override any existing
national rules. The ECJ has also given judgment on environmental
protection, the freedom of movement of goods, capital and
persons, as well as the freedom to provide services and competition.