A pension is a sum of money paid regularly as a retirement benefit. People build up pension entitlements during their working lives by making contributions. As a result, they receive a regular income when they retire.
Publications
The Annual Survey of Hours and Earnings (ASHE) pension tables present information for UK employees by type of pension arrangements within the company. The pension tables contain breakdowns by age, by industry including public/private sector, by occupation and by size of company.
This series of articles looks at the methodology for estimating average age of withdrawal or age of exit from the labour market.
Contains data on Pension Credit claimants at electoral ward level.
Contains data on persons of pensionable age on key benefits at electoral ward level.
Contains data on Retirement Pension claimants at electoral ward level.
Contains information on the activities of insurance companies, self administered pension funds, investment trusts, unit trusts and property unit trusts. The First Release brings together information on the investments made by institutions whose primary business is the investment of funds in the financial markets. It draws on data compiled from a series of quarterly and annual surveys.
Local Government pension scheme fund data.
Presents data from the State Retirement Pension (RP) Quarterly Statistical Enquiry, shows the key features of the RP population, provides a summary of the main features of RP and how they affect numbers of recipients and amounts of benefit in payment.
The annual report of the OPSS provides a detailed view of the nature of occupational pension provision in the UK, including estimates of pension scheme membership and contributions.
Results from the Occupational Pension Schemes Survey (OPSS) provide a detailed view of the nature of occupational pension provision in the UK. This release provides summary data on membership of schemes and contributions paid. More detailed information on scheme membership, the nature of the benefits provided and contributions paid appears in the Occupational Pension Schemes Annual Report.
Presents data from the Pension Credit (PC) Quarterly Statistical Enquiry, shows the key features of the PC population, provides a summary of the main features of PC and how they affect numbers of recipients and amounts of benefit in payment.
Pension Trends provides a statistical backdrop for the debate on pensions. It looks at changes in pension provision over time in the context of social and economic developments and changes in the policy environment.
Trends of pensioners' incomes by age and marital status.
Estimates and interpretation of trends in the level and sources of pensioners’ incomes.
A series of methodology articles describing work to compile the pensions supplementary table for the National Accounts, part of preparation for ESA2010
Provides general information on all HMRC taxes, including tax receipts, the number of taxpayers, personal tax credits, child benefit and estimates of the cost of tax expenditures and structural relief.
Second Tier Pension Provision provides the latest estimates on contracted out pension scheme and SERPS/S2P membership since the introduction of contracted out schemes in 1978/79 published by the Department for Work and Pensions (DWP).
War Pensions statistics.
Overview
Pension systems are designed to provide income for retired people who are no longer earning an income through employment. The UK pension system is made up of two distinct components: a mandatory state component and a voluntary private component. Private pensions in the UK are provided by employers in the private and public sectors and by insurance companies.
The statistics collected include:
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membership of pension schemes
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contributions made by members and employers
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scheme assets and liabilities
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income from pensions in retirement
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estimates of saving for retirement
Technical Data
There are a variety of sources from which pensions data are collated. These include surveys and information from administrative records. Some of the key sources are listed below.
Annual Survey of Hours and Earnings (ASHE) - Office for National Statistics (ONS)
The ASHE provides information about the levels, distribution and make-up of earnings and hours paid for employees within industries, occupations and regions, and is based on a 1 per cent sample of individuals with National Insurance numbers in the UK. The ASHE pensions tables replace previous pensions analysis from the New Earnings Survey and present results for UK employees by type of pension arrangements within their employer. The tables contain membership breakdowns by scheme type, age, sex, contribution rate, industry, occupation, size of company and contracted-out status.
English Longitudinal Study of Ageing (ELSA) - Institute for Fiscal Studies (IFS)
The ELSA survey sample is drawn from a representative sample of respondents to the Health Survey for England (HSE) aged 50 and over. The Work and Pensions module collects from each member of the ELSA sample employment details, job characteristics, earnings, occupational pension contributions or receipts, and retirement decisions. The information on pensions collects sufficient information to establish individual pension contributions and pension rights for those not currently drawing pensions and to determine how these will change with employment or retirement decisions.
Expenditure and Food Survey (EFS) - Office for National Statistics (ONS) and Department for Environment, Food and Rural Affairs (DEFRA)
The EFS is a continuous survey of household expenditure, food consumption and income based on a sample of around 12,000 private households in Great Britain. The EFS began in 2001 taking over from the Family Expenditure Survey (FES) and the National Food Survey (NTS) and includes details of household expenditure on private pensions as well as the general expenditure of households in receipt of state pensions.
Family Resources Survey (FRS) - Department for Work and Pensions (DWP)
The FRS is a continuous survey of around 29,000 private UK households and collects information on both the receipt of pension income and whether contributions are currently being made (both occupational and personal pensions) as well as information about overall profile of scheme membership and information broken down into various categories (for example sex, age and employment). For occupational pensions the FRS contains information on length of membership, whether the scheme is contributory, whether additional voluntary contributions are being paid (and in what form), and what has happened to earlier accrued rights. For personal pensions it contains information on how many personal pensions are held (currently), when they were taken out, if contracted-out, who pays in and how much was contributed by the individual.
General Household Survey (GHS) - Office for National Statistics (ONS)
The GHS is an inter-departmental survey carried out by ONS collecting information on a range of topics from people living in around 13,000 private households in Great Britain. Results from the GHS include data on membership of personal and occupational pension schemes by various social characteristics (age, sex, FT/PT employment, earnings levels, socioeconomic classification, industry and size of establishment).
Households Below Average Income (HBAI) - Department of Work and Pensions (DWP)
Based on an analysis of the Family Resources Survey (FRS) the HBAI series presents information on potential living standards of pensioners as determined by their disposable income in a given year, changes in income patterns over time and income mobility.
MQ5 Business inquiry: Insurance Companies, Pension Funds and Trusts Investments - Office for National Statistics (ONS)
MQ5 is a quarterly ONS publication containing information on the activities of insurance companies, self-administered pension funds, investment trusts, unit trusts and property unit trusts. The estimates are derived from statistical enquiries to these financial institutions.
Occupational Pension Schemes Survey (OPSS) - Office for National Statistics (ONS)
The OPSS provides a detailed analysis of occupational pension provision in the UK. This includes the membership of schemes by scheme size and scheme type, the nature of the benefits provided and the level of contributions paid by both employers and employees. The sample is selected at random from a database of all UK based occupational and personal pension schemes with two or more members maintained by The Pensions Regulator (TPR).
Pensioners' Income Series - Department of Work and Pensions (DWP)
Contains estimates and interpretation of trends in the levels and sources of pensioners' incomes, based on two household surveys, the Family Resources Survey (FRS) and the Expenditure and Food Survey (EFS).
Pension Trends
Pension Trends is an online publication which draws together statistics from ONS, a number of government departments and other organisations to highlight the complex issues that shape trends in pension provision in the UK. It contains chapters on pensions legislation and reforms; the ageing population and the transition from work to retirement; state pensions; private pensions, including membership of pension schemes, pension contributions and scheme funding and investment; saving for retirement; pensioner income (from pensions and other sources) and expenditure; and pensions in the National Accounts. More information can be found on the National Statistics website.
Pensions Protection Fund (PPF) 7800 Index - Pensions Protection Fund (PPF)
This PPF monthly update provides the latest estimated funding position, on a Section 179 basis, of predominantly private sector defined benefit (DB) UK pension schemes.
Tabulation Tool - Department for Work and Pensions (DWP)
The Department for Work and Pensions now makes many of its statistics available for public use via an online tabulation tool. The statistics from the Work and Pensions Longitudinal Study (WPLS) are based on all claimants and cover information such as age and gender of claimant, duration of their spell on benefit and geographical locations of claimants.
The Purple Book - The Pensions Regulator (TPR) and the Pension Protection Fund (PPF)
TPR and the PPF produce jointly ‘The Purple Book’, a detailed assessment of the risks faced by defined benefit (DB) pension schemes, predominantly in the private sector in the UK. TPR also maintains a database of all UK based occupational and personal pension schemes with two or more members.
The State of the Nations Savings - Association of British Insurers (ABI)
Annual survey report based on the autumn quarter results of the ABI Pensions and Savings Index, an internet survey of savings behaviour conducted by YouGov of around 3,000 employed individuals in Great Britain. From an analysis of the State of the Nations Savings survey results.
Wealth and Assets Survey (WAS)
The WAS is a new survey that collects information about the economic wellbeing of households and individuals. Households in the survey are followed up to find out how their wealth varies over time. The survey includes pension provision and estimates of pension wealth. The report of the first wave (2006/08), ‘Wealth in Great Britain’, covers 31,000 households over a two-year period. More information can be found on the National Statistics website.
Glossary
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Accrual
The build-up of a scheme member's pension benefits or rights.
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Accumulation
The stage in people's lives when they are building up pensions. See also: Decumulation.
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Active members
Active members are current employees who would normally contribute (or have contributions made on their behalf) to an organisation’s pension scheme. In some cases, there may be a break in contributions, known as a contribution holiday.
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Actuarial assumptions
The assumptions made by actuaries in formulating valuations or making other calculations. Assumptions would include changes in longevity, wage growth, inflation, and the discount rate.
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Actuarial reduction
The reduction in pension, calculated by an actuary, that occurs if someone takes their pension before the normal pension age specified in the scheme rules.
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Actuary
An adviser on financial questions involving probabilities relating to mortality and other contingencies.
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A-Day
On 6 April 2006 – ‘A-Day’ – the Government implemented a new, simplified tax regime for pensions to replace the eight existing regimes.
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Additional state pension
The generic name for the part of the state pension which is received by some people in addition to the Basic State Pension. Currently, it is the State Second Pension (S2P). Before 6 April 2002, it was known as the State Earnings - Related Pension Scheme (SERPS) and before that as graduated retirement benefit.
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Additional voluntary contributions (AVCs)
A pension top up arrangement where an employee pays additional amounts into a pension run by their employer in order to increase their pension entitlement. Normally, the contributions are deducted from the employee's pay. See also: Free-standing additional voluntary contribution.
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Administrative data
Data that are a by-product of the operational activity of an organisation, such as tax data from HM Revenue and Customs. Administrative data are distinct from survey data, which are collected specifically for a statistical or research purpose.
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Alternatively secured pension (ASP)
A form of income drawdown, introduced on A-Day to provide an alternative to using pension savings to buy an annuity. Individuals can continue to invest their pension savings and draw a limited income from their fund.
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Annual management charge (AMC)
A charge levied on an investment fund for its management and administration.
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Annuity
A financial instrument provided by an insurance company that pays a guaranteed annual income to the holder, typically until death. Members of defined-contribution pension schemes generally purchase annuities with their accrued funds upon retirement in order to secure an income.
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Appropriate personal pension (APP)
A type of personal pension that meets certain regulatory requirements that allow an individual employee to contract out of the State Second Pension (formerly SERPS) and receive contracted-out rebates from National Insurance payments.
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Auto-enrolment/automatic enrolment
The process whereby an individual is made a member of a pension scheme by default, and has to take action if he or she wishes to leave the scheme.
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Basic State Pension (BSP)
The Basic State Pension is weekly payment made by the Government to people who have reached State Pension Age. An individual's Basic State Pension depends on the number of qualifying years that they have earned during their working life. The number of qualifying years is based on the National Insurance contributions that a person has been paid, has been treated as having paid, or has been credited with. For people reaching State Pension Age on or after the 6 April 2010, the requirement for a full Basic State Pension is 30 qualifying years. The directgov website shows current levels of Basic State Pension (http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/DG_188551)
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Beneficiary
A term usually referring both to the member of a pension scheme and their dependants to whom benefits are payable. It is sometimes used to refer only to the dependants who will benefit.
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Bond
A negotiable loan instrument sold by firms (corporate bonds) and the Government (commonly known as Gilts), generally with a fixed term to maturity, that pays the holder the face value (or ‘principal’) upon redemption, together with 'coupon' payments paid semi-annually (although sometimes annually) during the term to maturity. A bond that makes no coupon payments is known as a zero-coupon bond.
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Bulk buyout
On winding up an occupational scheme, trustees will normally buy out the accrued benefits of members and other beneficiaries who have immediate or deferred annuities. Where there is a deficit in scheme funding, and scheme wind-up starts after 5 April 2005 and the employer is insolvent, the scheme will be assessed by the Pension Protection Fund.
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Buy in/buy out
With a pension buy out, existing pension scheme assets and liabilities are transferred to an insurance company. With a pension buy-in, the pension scheme sponsor exchanges the existing assets of the scheme for annuities that are provided by an insurance company. In both cases, the longevity risk of the scheme is transferred to an insurance company.
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Career average revalued earnings (CARE) scheme
A defined benefit scheme that gives individuals a pension based on salary times the accrual rate in each year of their working life. Entitlements that are built up each year are revalued until retirement in line with inflation or earnings.
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Closed pension scheme
See scheme status.
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Cohort
A group of people who are observed over time, usually defined by date of birth or date of attaining some other status. For example, a sample of people born in 1951 would form a birth cohort.
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Cohort life expectancy
See life expectancy.
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Consumer Prices Index (CPI)
The CPI measures the average change in prices (inflation) across a wide range of consumer purchases. It is the basis for the UK Government's inflation target which the Bank of England's Monetary Policy Committee is required to achieve. In June 2010, the Government announced its intention to use the CPI (instead of the Retail Prices Index) from 6 April 2011 for the indexation of state pensions and pensions for public sector employees, as well as of benefits and tax credits. Some private sector pension schemes may also use the CPI for indexation purposes in future.
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Contract based pensions
Pensions where the legal contract is between the individual and the pension provider, usually an insurance company. Contract-based pensions are also known as personal pensions.
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Contracted out
This refers to a statutory arrangement under which pension schemes that meet certain conditions may contract out of the State Second Pension (S2P), formerly the State Earnings-Related Pension Scheme (SERPS). The members’ and employers’ National Insurance contributions are reduced or partially rebated. Members of a contracted out pension scheme obtain rights to an additional state pension. See also: Minimum contribution.
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Contracted-out mixed benefit scheme (COMBS)
An occupational pension scheme which has separate defined benefit and defined contribution sections and which contracts out on both bases.
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Contracted-out money purchase scheme (COMPS)
A scheme that contracts out on a defined contribution basis.
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Contracted-out rebate
The amount by which the employer’s and employee’s National Insurance contributions are reduced when the employee is in a contracted-out occupational or personal pension.
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Contracted-out salary-related scheme (COSRS)
An occupational pension scheme that has retirement benefits that are based on salary, and which has been contracted out according to Section 9(2) of the Pensions Schemes Act 1993.
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Contracted-out stakeholder pension (COSP)
A stakeholder pension that has been contracted out according to the Appropriate Personal Pension requirements.
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Contribution holiday
A temporary period during which the employer or employees take a break from making contributions because of a surplus in a defined benefit pension fund.
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Contributions
Payments into a pension by employees (and other individuals) or by employers.
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Corporate bonds
See bond.
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Corporate securities
See securities.
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Crude birth rate
The simplest overall measure of fertility in a population, given by the number of live births in a year per 1,000 mid-year population. It takes no account of the composition of the population, in particular the age and sex distribution.
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Crude death rate
The basic measure of the level of mortality in a population, defined as the total number of deaths per 1,000 mid-year population. The crude death rate takes no account of any variation in mortality levels by age or sex.
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Decile
See percentile.
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Decumulation
The drawing down of pension assets to fund retirement. In the UK it is permitted to access pension assets partially as a tax-free lump sum and partially as an income stream (i.e. as an annuity or income drawdown).
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Deferred entitlement
Entitlement to a pension payable some time in the future. It can be either entitlement to a pension payable from normal pension age for someone who has left a scheme or entitlement to a pension that has been deferred because retirement has been postponed beyond the normal pension age.
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Deferred member
A member of an occupational pension scheme who has accrued rights or assets in the scheme that will come into payment at normal pension age but who is no longer actively contributing (or having contributions paid on his or her behalf) into the scheme.
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Defined benefit
A pension in which the rules of the scheme specify the rate of benefits to be paid. The most common defined benefit scheme is a final salary scheme in which the benefits are based on the number of years of pensionable service, the accrual rate, and the final salary. An increasingly common alternative to the final salary scheme is the Career Average Revalued Earnings (CARE) scheme which is also a defined benefit scheme.
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Defined contribution scheme
A pension scheme in which the benefits are determined by the contributions paid, the investment return on those contributions (less charges), and the type of annuity purchased upon retirement. It is also known as a money purchase scheme.
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Dependant
A person who depends financially on the pension scheme member, or did so at the time of the member’s death or retirement.
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Dependency ratio
The ratio of the number of dependent people to the number of those supporting them. For example, the old age dependency ratio is the number of people over State Pension Age in relation to the number of people of working age. The support ratio is the inverse of the dependency ratio, and is the number of people giving support in relation to the number of people depending on them.
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Discount rate
An rate used to reduce an amount of money at a date in the future (called a future value) to an equivalent value (called a present value) in the present.
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Economically active
People who are either in employment or unemployed. See also: Economically inactive.
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Economically inactive
Economically inactive people are those who are neither in employment nor unemployed, and who are not actively seeking work; these include people looking after a home or family, retirees and the long-term sick or disabled.
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Employer-facilitated pension
A workplacepension that is organised through the employer, enabling pension contributions to be made through the payroll. The employer may make a contribution. An employer-facilitated pension will be a group personal or group stakeholder pension rather than an occupational pension scheme.
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Employer-provided pension
A workplacepension that is organised through the employer, enabling pension contributions to be made through the payroll. The employer is likely to make a contribution. An employer-provided pension will be an occupational pension scheme, not a group personal or group stakeholder pension.
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Employer-sponsored pension
A workplace pension that is organised through the employer. It may be employer-facilitated or employer-provided.
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Employment
People who are in employment may be employees, self-employed, on a government-supported training programme, or unpaid family workers. The International Labour Organisation (ILO) defines people as being employed if they are in one or more hours of paid employment a week.
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Equity
A share or any other security representing an ownership interest, typically in a company.
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Equity release
Equity release schemes give home owners a way of accessing part or all of the value of their home, either as a lump sum or as an annuity, while continuing to have full residence rights during their lifetime.
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Fertility rate
The number of live births in a population in a given period. It can be measured in several ways. See also: Crude birth rate.
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Final salary scheme
See defined benefit scheme.
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First tier
See tier.
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Free-standing additional voluntary contributions (FSAVCs)
A pension top-up arrangement where an employee pays additional amounts into a pension provided by a company outside their place of employment to increase their pension entitlement. Normally payments are made from the individual's band account. Employers are not obliged to make contributions. See also: Additional voluntary contributions.
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Frozen pension scheme
See scheme status.
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FRS17
FRS17 is the accounting standard for UK pension costs. It is mainly concerned with defined benefit occupational schemes in the private sector but applies to all retirement benefits. It requires sponsoring employers to value on a “fair value” basis the assets and liabilities of their occupational schemes. The resulting surplus (or deficit) must then be recognised as an asset (or liability) in the company balance sheet. FRS17 replaced the previous standard SSAP24 on 30 November 2001.
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Fund
See pension fund.
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Funded scheme
A scheme in which benefits are met from a fund built up in advance from contributions and investment income.
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Gilts
An abbreviation for ‘gilt-edged securities’, also known as government bonds. These are negotiable loan instruments issued by the UK Government. They are generally similar in structure to corporate bonds, paying a fixed schedule of coupon payments together with the return of the principal (i.e., the face value of the bond) on the redemption date. Gilts are generally considered to be one of the safest forms of investment and so generate a correspondingly lower return than some more risky assets such as corporate bonds or equities. Some Gilts make payments that are fixed in cash terms, whereas others make index-linked payments.
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Government securities
See securities.
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Graduated retirement benefit
Between 1961 and 1975, employees paid graduated National Insurance contributions on top of their flat-rate contributions, above a certain earnings limit. Graduated retirement benefit is that part of an individual’s additional state pension that depends on these contributions.
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Gross Domestic Product (GDP)
The total value of economic activity in a country or region. It is measured in either current prices or real terms.
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Gross operating surplus
The value of businesses’ outputs, less intermediate inputs and the remuneration of labour.
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Group Personal Pension (GPP)
An arrangement made for the employees of a particular employer or group of employers to participate in a personal pension on a group basis. This is a collecting arrangement only; the contract is between the individual and the pension provider, normally an insurance company. See also: Personal pensions.
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Group Self Invested Personal Pension (GSIPP)
An arrangement made for the employees of a particular employer, or group of employers, to participate in a personal pension on a group basis. The GSIPP is similar to the Group Personal Pension except that it is the policy holder rather than the pension provider who chooses the investments. See also: Personal pensions.
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Group stakeholder pension
An arrangement made for the employees of a particular employer or group of employers to participate in a stakeholder pension on a group basis. This is a collecting arrangement only; the contract is between the individual and the pension provider, normally an insurance company. See also: Stakeholder pensions.
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Guarantee Credit
A means-tested benefit that is part of Pension Credit and provides pensioners with a minimum level of income.
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Home Responsibilities Protection (HRP)
This reduces the number of years for which someone has to make National Insurance contributions in order to receive a full state pension. It is available to people who are not in work because they care for children or the long-term sick or disabled.
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Household head or reference person
In the past, the 'head of household' was used in surveys to represent the household. This was defined as the eldest householder, with males taking precedence over females in the case of couples or non-related joint householders. However, since 2001, the Office for National Statistics has used the concept of 'household reference person' instead. This is defined as the person in whse name the accommodation is owned or rented. When there are joint householders, it is the person with the highest income; if their incomes are the same, then the older person is selected.
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Household saving ratio
The proportion of total household resources – the sum of all households’ gross disposable income plus equity gains from pension funds – that is left once their consumption expenditure has been deducted.
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Housing Benefit
A means-testedbenefit through which the UK Government helps qualifying individuals to meet rental payments. Qualification criteria include income, savings and personal circumstances.
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Hybrid pension
A workplace pension that offers members either a choice, or mixture, of defined-benefit and defined-contribution rights at retirement. If the scheme offers a choice, the benefit is calculated as the better of the two alternatives; each acts as an underpin for the other. For example, a typical hybrid arrangement offers a defined-contribution pension but is underpinned by a minimum defined benefit entitlement.
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Incapacity benefit
Benefit paid to people incapable of work due to ill health or disability and who have sufficient National Insurance contributions or became incapable of work in youth.
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Income drawdown
Where an individual does not buy an annuity with their pension pot but instead draws an income from the fund. See also: Alternatively secured pension, Unsecured pension.
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Index-linked
Bonds, Gilts, annuities and other financial products can be linked to an index such as the Retail Prices Index. The income and capital values of linked assets increase in line with that index.
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Individual personal or stakeholder pension
A personal pension or stakeholder pension taken out by an individual on their own initiative, as opposed to a group personal or group stakeholder pension which is facilitated by an employer. See also: Personal pension, Stakeholder pension.
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Individual Savings Account (ISA)
A regulated savings account available to most UK residents as a means of earning tax-free returns on a variety of assets, including cash, life insurance, stocks and shares. There are limits on the value of total investment in any one financial year. In April 1999, ISAs superseded Personal Equity Plans (PEPs), and Tax-Exempt Special Savings Accounts (TESSAs) which had been introduced in 1987 and 1991 respectively to encourage personal savings. PEPs and TESSAs also allowed tax-free income and interest to be earned. Since the introduction of ISAs, no new contributions to PEPs or TESSAs have been allowed.
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Insurance-managed pension fund
A type of self-administered pension fund where an insurance company acts as external investment manager, but ownership of the assets remains with the scheme. See also: Insured pension scheme.
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Insured pension scheme
An occupational pension scheme in which the benefits are secured by insurance policies and the insurance company holds the scheme assets. See also: Insurance-managed pension fund.
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International Labour Organisation (ILO)
A specialised agency of the United Nations, created to deal with labour issues.
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Interpolation
The calculation of new data points to fill in gaps within an existing set of known data points. For example, if an annual survey of employment had run from 1990 to 2005 but had been suspended for 2002, then an employment figure for 2002 could be interpolated by taking the average of the values for 2001 and 2003.
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Interquartile range
The difference between the first and third quartiles of a distribution (see percentiles), which gives a measure of the extent to which the data in a sample are dispersed around the median.
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Invalidity benefit
A benefit paid to people assessed as incapable of work, which was replaced by Incapacity benefit from 1995.
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Investment trusts
Companies that produce income by investing in the shares of a wide range of other companies.
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Liabilities
In the context of pensions, the benefits owed to members by a pension scheme.
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Life expectancy
Life expectancy at a given age is an estimate of the average number of years that someone of that age will live thereafter. It is calculated using age- and sex-specific mortality rates at that age, at that age plus a year, at that age plus two years, and so on. Period life expectancy is calculated using age-specific mortality rates for the period under consideration and makes no allowance for changes in age-specific mortality rates after that period. For example, a period life expectancy calculation for a man aged 50 in calendar year 2000 would use male mortality rates for age 50 in 2000, age 51 in 2000, age 52 in 2000 (and so on). Cohort life expectancy is calculated allowing for subsequent known or projected changes in age- and sex-specific mortality rates after that period. For example, a cohort life expectancy for a man aged 50 in 2000 would be calculated using male mortality rates for age 50 in 2000, age 51 in 2001, age 52 in 2002 (and so on). The cohort definition is the better measure of true life expectancy.
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Lifestyle fund
An investment fund that has an asset mix determined by the level of risk and return deemed appropriate for an individual investor according to their age. Funds aimed at younger investors consist mainly of higher risk (and higher return) assets such as equities, while funds aimed at investors closer to retirement consist mainly of lower risk (and lower return) assets such as bonds. As investors age, their pension pots are moved into funds with decreasing levels of risk.
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Limited Price Indexation (LPI)
LPI applies to pensions in payment relating to contributions made from April 1997. Under LPI, pensions had to be increased by 5 per cent per year or by the increase in the Retail Prices Index (RPI), whichever was less, until 2005, when the rate was changed to 2.5 per cent or RPI. In 2010, the government announced that indexation would, in future, be based on the Consumer Prices Index (CPI) rather than the RPI. This change affects public sector pensions and some private sector pensions.
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Longevity risk
The risk that a pension fund or insurance company may end up paying out more than anticipated if those to whom it has agreed to pay a pension live longer than expected.
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Longitudinal study/survey
A research study or survey that follows a group of individuals over a period of time.
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Lower Earnings Limit
For the purpose of calculating rights to the State Second Pension (S2P), employee contributions are treated as having been paid on earnings from the Lower Earnings Limit up to and including the Lower Earnings Threshold for National Insurance contributions. For current levels, see the HM Revenue and Customs website (www.hmrc.gov.uk/rates/nic.htm).
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Lower Earnings Threshold
See: Lower Earnings Limit.
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Mean
A measure of the 'average'. The mean of a group of values is calculated by summing all of the values and dividing the total by the number of values. See also: Median.
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Means-tested benefits
State benefits in which the amount paid depends on an individual's level of income and capital and other personal circumstances.
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Median
The median of a distribution is the value below which half of the data lie. For example, if the heights of nine people are placed in order, then the median is the fifth height listed because half of the people will have heights below this and half will have heights above this. The median is a useful alternative to the mean when data are not evenly distributed. For example, when looking at income or wealth, it gives a better idea of the 'typical' person than the mean.
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Minimum contributions/National Insurance rebate
Contributions payable to contracted-out personal pension schemes or Free-Standing Additional Voluntary Contributions from the National Insurance Fund, as well as some tax relief, in respect of a member who has elected to contract out.
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Minimum funding requirement
A requirement, under the 1995 Pensions Act, that under a prescribed set of actuarial assumptions, the value of the assets of a defined benefit scheme should not be less than the value of its actuarial liabilities.
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Minimum Income Guarantee (MIG)
The forerunner of the Guarantee Credit.
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Money purchase scheme
See defined contribution scheme.
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Mortality
The number of deaths that occurred in a population in a given period.
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Mutual funds
In the UK, a term describing collective investment vehicles such as unit trusts and open-ended investment companies. Mutual funds allow investors to purchase identical units of a large fund (in essence, scaled-down versions of the overall fund), which pay a return in direct proportion to the return on the overall fund.
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National Accounts
The system used to measure national income and output to estimate the value of goods and services produced in a country’s economy.
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National Insurance (NI)
The national system of benefits paid in specific situations, such as retirement, based on compulsory contributions. There are four main classes of contributions. Class 1 contributions are paid by the employed, and accrue rights to the Basic State Pension and State Second Pension. Class 2 contributions are paid by the self-employed and accrue rights only to the Basic State Pension. Class 3 contributions are voluntary, for those not contributing through classes 1 or 2, and accrue rights to the Basic State Pension. Class 4 contributions are for the self-employed and accrue no rights to benefits. See also: Basic State Pension, Additional State Pension.
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National Insurance number
Each UK resident is issued with a unique National Insurance number. It is used for assigning National Insurance contributions and credits to an individual's account and for the administration of the Pay As You Earn (PAYE) system.
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National Insurance rebate
See Minimum contributions.
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National Savings Bonds
Personal savings bonds offered by National Savings and Investments, an executive agency of HM Treasury. They have fixed terms of one, three and five years to maturity and are purchased at a fixed rate of interest. Holders can choose either to receive monthly or annual interest payments, or to have those payments automatically reinvested at the initial interest rate.
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National Statistics Socio-economic Classification (NS-SEC)
The classification used for all official statistics and surveys in the UK since 2001 to categorise socio-economic status. It is based on occupation, as classified by the Standard Occupational Classification, and employment status.
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Non-contributory pension scheme
A pension scheme to which members do not need to make contributions.
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Non-Profit Institutions Serving Households (NPISH)
A National Accounts category that includes bodies such as charities, universities, churches, trade unions and members' clubs.
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Non-state pension
A pension other than the state pension (made up of the Basic State Pension and the additional state pension). A non-state pension may be referred to as a private pension. It includes all workplace and individual personal pensions, including those for public sector employees.
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Normal pension age
The age at which active members and deferred members are normally entitled to receive their benefits under pension scheme rules. Pensions may be paid earlier in some cases, but they are likely to be subject to an actuarial reduction.
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Occupational pension scheme
An arrangement (other than accident or permanent health insurance) organised by an employer (or on behalf of a group of employers) to provide benefits for employees on their retirement and for their dependants on their death. In the private sector, occupational schemes are trust-based. Occupational pension schemes are a form of workplace pension.
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Occupational Pensions Regulatory Authority (OPRA)
A regulatory body for occupational pensions that was replaced with effect from April 2005 by the Pensions Regulator.
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Open-ended investment company
A collective investment company that creates new units in a portfolio of underlying assets when money is invested and redeems them when money is withdrawn. Open-ended investment companies differ from unit trusts in that there is a single buying and selling price for the units traded.
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Open pension scheme
See scheme status.
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Outturns
In financial terms, realised income and expenditure in given periods in relation to original budgets.
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Partly insured pension scheme
A self-administered scheme in which some of the assets are reinvested with an insurance company in the form of insurance policies.
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Pay As You Earn (PAYE)
A mechanism used to collect tax, National Insurance contributions and some other statutory payments such as student loans from employees. The employer makes the appropriate deductions from weekly or monthly earnings and sends the contributions to HM Revenue and Customs. PAYE is not normally used for the self-employed.
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Pay As You Go (PAYG)
A system in which the state uses revenue received from taxation and other sources in any one year to pay out pensions and other benefits for that year. There is no fund built up in advance from contributions and investment income, so the system is often referred to as unfunded. The Basic State Pension and the additional state pension are both PAYG schemes, as are most pensions schemes for public sector employees.
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Pension
An income to be used in retirement.
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Pensionable service
The period of employment that is taken into account when calculating pension benefits.
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Pension Credit
The main means-tested benefit for pensioners, which combines the Guarantee Credit and the Savings Credit.This term is also used to refer to instances where the spouse of a pension scheme member is given a credit in respect of any pension benefits arising on divorce.
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Pensioners' Guaranteed Income Bonds/Granny Bonds
Bonds that used to be issued by National Savings and Investments, which were available to those aged over 60 and offered a taxable fixed income over a fixed term to maturity.
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Pension fund
The pool of investment assets of a pension scheme or pension schemes which are purchased through aggregate employer and employee contributions. Fund holdings consist of longer-term financial assets such as corporate and public sector securities, fixed assets and other short-term assets.
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Pension Protection Fund
The Pension Protection Fund was established in April 2005 to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.
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Pension scheme
A legal arrangement offering benefits to members upon retirement. Schemes are provided by employers and are differentiated by a wide range of rules governing membership eligibility, contributions, benefits and taxation. Pension schemes in the private sector have trustees. Personal pensions and stakeholder pensions offered by insurance companies may also be referred to as schemes, but technically they are individual accounts rather than schemes.
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Pensions in payment
Pensions that are being paid out to members, mostly in retirement.
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Pensions Regulator
See The Pensions Regulator (TPR).
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Percentiles
The 100 percentiles of a distribution divide the data, sorted in ascending order, into one hundred equal parts so that each part contains a hundredth of the distribution. For example, in a sample of 1,000 people, 10 will have earnings below the bottom percentile of earnings and 290 will have earnings below the 29th earnings percentile. Similarly, the 10 deciles of a distribution divide the data into ten equal parts so that each part contains one-tenth of the distribution. For example, in a sample of 1,000 people, 100 will have wealth below the bottom decile of wealth. Quartiles divide the population into four equally sized groups, quintiles into five. The median is the 50th percentile.
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Period life expectancy
See life expectancy.
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Persistency
Continuing to pay into a pension or other investment or savings policy that requires regular contributions over a period of time.
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Personal Equity Plan (PEP)
A tax-free personal investment vehicle introduced in 1987. Individual Savings Accounts (ISAs) superseded PEPs in 1999.
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Personal pension
A arrangement where the contract to provide contributions in return for retirement benefits is between an individual and an insurance company. Suich plans may be taken out by individuals on their own initiative – for example, to provide a primary source of retirement income for the self-employed, or to provide a secondary income to employees who are members of occupational schemes (see Individual personal or stakeholder pension). Alternatively they may be facilitated by an employer (see Group Personal Pensions, Group Stakeholder Pensions, Group Self Invested Personal Pensions). Personal pensions are a form of defined contribution pension.
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Premium Bonds
Savings instruments offered to individuals by National Savings and Investments, an executive agency of HM Treasury. Premium bonds are perpetuities (that is, they never mature) that do not pay interest; instead, holders become eligible for monthly prize draws where the prize fund is equal to the amount of interest earned on the total value of bonds outstanding.
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Private pension
See non-state pension.
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Private sector
The part of the economy consisting of individuals/households, firms and non-profit institutions serving households.
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Provisional results
Results that have been published on an interim basis for the sake of timeliness and that will be superseded by final results incorporating full data at a later date.
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Public sector
The part of the economy that is state-provided, including central and local government, schooling, health and social services, policing and the armed forces.
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Public sector securities
See securities.
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Qualifying year
A tax year during which someone has built up National Insurance payments, whether through work (earning at least the annual Lower Earnings Limit in a tax year), being credited while on certain benefits, or through additional payments.
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Quartile
See percentiles.
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Quintile
See percentiles.
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Quoted shares
Shares that are listed on a stock exchange. Shares that are not listed are called unquoted shares.
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Retail Prices Index (RPI)
The RPI measures the average change in prices (inflation) across a wide range of consumer purchases. Before 6 April 2011, it was used for the indexation of state pensions, public sector employee pensions and benefits and tax credits; it remains the measure of inflation used for uprating index-linked Gilts.
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Retirement
There is no widely agreed definition of retirement. Generally, it refers to someone who used to be in employment and has withdrawn from the labour market. However, there is no agreement on whether people should only be considered to be retired if their exit from the labour market is permanent, or if they are in receipt of a pension, or other factors.
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Retirement annuity contract
The forerunner of modern personal pensions.
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Salary-related scheme
See defined benefit scheme.
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Salary sacrifice
Salary sacrifice occurs when an employee gives up part of the cash pay due under their contract of employment, in return for some other form of benefit. For example, an employee may forgo an increase in salary in return for an equal increase in employer contributions towards their pension. Sacrifices of this type have tax and National Insurance incentives for employees, and National Insurance incentives for employers.
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Savings Credit
A means-tested benefit for people aged 65 and over which forms part of Pension Credit.
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Scheme status
An occupational pension scheme may be open, closed, frozen or winding up. An open scheme admits new members. A closed scheme does not admit new members but may continue to receive contributions from or on behalf of existing members who continue to accrue pension rights. In a frozen or 'paid up' scheme, benefits continue to be payable to existing members but no new members are admitted, and no further benefits accrue to existing members. Members can make no more contributions but further employer contributions may be made, and may have to be made, for example to correct a deficit. A scheme that is winding up is in the process of termination, either by buying annuities for the beneficiaries or by transferring assets and liabilities to another scheme or to the Pension Protection Fund.
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Seasonally adjusted
A statistical technique that attempts to remove the influence of regular seasonal effects from monthly or quarterly economic statistics, such as the rise in the labour force in the summer due to school leavers.
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Second tier
See tier.
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Sectionalised scheme
A term defining a scheme that has two or more distinct groups of members, such as a scheme with a defined contribution section for new entrants and a closed defined benefit section. Sections need not be differentiated by benefit type, however, only by any form of barrier preventing members of one section from moving into the other. Sectionalisation can occur when different benefit levels and/or types are offered to members due to factors including tenure, seniority and contract status. It can also result from mergers and acquisitions.
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Securities
A term describing both debt and equity instruments, such as bonds and shares. Corporate securities are issued by the private sector, while public sector securities are issued by central or local government. The most common government securities are central government bonds, referred to as Gilts.
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Self-administered pension fund
An pension fund in which the assets of the scheme are invested by the trustees or an internal or external investment manager, rather than through an insurance policy with an insurance company. Those self-administered pension funds where the assets are managed externally by an insurance company are known as insurance-managed pension funds.
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Self-Invested Personal Pension Plan (SIPP)
A personal pension in which the policy holder rather than the pension company chooses the investments.
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Share
See equity.
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Socio-economic group
In official statistics and surveys, the National Statistics Socio-economic Classifications (NS-SEC) is used to provide and indication of a person's socio-economic group.
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Special contributions
Special contributions are payments made by employers, over and above normal contributions, to reduce funding deficits or to meet additional costs as required by the scheme rules.
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Stakeholder Pension
Available since 2001, a flexible, portable, personal pension arrangement (provided by insurance companies) with capped management charges, that must meet the conditions set out in the Welfare Reform and Pensions Act 1999 and be registered with The Pensions Regulator. They can be taken out by an individual (see Individual Personal or stakeholder pension) or facilitated by an employer (see Group stakeholder pension). Where an employer of five or more staff offers no occupational pension and an employee earns over the Lower Earnings Limit, the provision of access to a stakeholder scheme with contributions deducted from payroll is compulsory.
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Stakeholder price cap
This is the maximum permitted Annual Management Charge (AMC) for stakeholder pensions, currently 1.5% for the first ten years of the policy and 1% thereafter.
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Standard Industrial Classification (SIC)
The classificatory system used in official statistics to place business establishments and other statistical units into the area of industry in which they are engaged.
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Standard Occupational Classification (SOC)
The classificatory system used in official statistics to place individuals into occupational groups.
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State Earnings-Related Pension Scheme (SERPS)
The forerunner of the State Second Pension, which replaced SERPS on 6 April 2002. It provided an earnings-related additional state pension based on National Insurance contributions.
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State Pension Age (SPA)
The age at which an individual can claim a state pension, although people can choose to defer the receipt of their state pension beyond this age. At present State Pension Age is 65 for men. SPA for women was 60 until 5 April 2010, but under the Pensions Act 1995 the SPA for women began to increase on 6 April 2010. The increases are being implemented in stages, with the exact age at which women become entitled to a state pension depending on their date of birth. Under the Pensions Act 1995, women's APA would reach 65 (in line with men's) by 2020. Under the Pensions Act 2007, the SPA for both men and women would increases from 65 to 68 by 2046). However, a Pensions Bill presented to Parliament in January 2011 proposes faster increases. The proposed changes would bring women's SPA in line with men's at age 65 by 2018 and bring forward the increase in SPA for both men and women to 66 by 2020.
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State Second Pension (S2P)
The successor, from 6 April 2002, to the State Earnings-Related Pension Scheme (SERPS). It currently provides an earnings-related additional state pension based on National Insurance contributions. Under current legislation, the earnings related approach is being gradually replaced by a flat rate approach. S2P will become fully flat-rate by 2030.
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Superannuation
Another term used for pension, particularly before the 1990s.
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Support ratio
See dependency ratio.
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Tax Exempt Special Savings Account (TESSA)
A five-year tax-free savings account with a bank or building society, introduced by the Government in 1991 and terminated in 1999.
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Tax-free lump sum
Since A-Day it has been possible for most people to take a tax-free sum of up to 25% of their pension entitlement when they first take their pension.
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Tax relief on pension contributions
Reductions in taxation in respect of pension contributions. For approved occupational pension schemes, tax relief is given at source; that is, contributions are deducted from the member’s pay before earnings are calculated for tax. For personal pensions, contributions are paid net of the basic rate of tax. Pension providers recover tax at the basic rate from HM Revenue and Customs with the contributor recovering any higher rate tax through their self-assessment return.
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The Pensions Regulator (TPR)
The regulatory body for workplace pension schemes (occupational pension schemes, stakeholder pension schemes and certain personal pensions) in the UK, which was created under the Pensions Act 2004. TPR replaced the Occupational Pensions Regulatory Authority (OPRA) in April 2005.
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Third tier
See tier.
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Tier
In order to allow international comparisons of pension systems, pension provision is categorised into 'tiers'. The following definitions are generally used for tiers as they apply to the UK pensions system. The first tier consists of the Basic State Pension and means-tested benefits. The second tier consists of the additional state pension and all occupational and personal pensions. In the UK, it is mandatory for employees to make second-tier provision for earnings that fall between a given upper and lower limit. The self-employed are not eligible to join the additional state pension and their second-tier provision is generally restricted to personal pensions. The third tier consists of Additional Voluntary Contributions and some personal pensions held in addition to second tier provision.
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Transfer payment
A payment made from one pension scheme to another in lieu of benefits that have accrued to a transferring member, to enable the receiving scheme to provide alternative benefits.
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Trust-based pensions
Occupational pension schemes in the private sector are also known as trust-based workplace pension schemes. They are set up under trust law by one or more employers for the benefit of their employees.
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Underpin
See hybrid scheme.
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Unemployed
The International Labour Organisation (ILO) defines unemployed people as those who (1) are without a job, want a job, have actively sought work in the last four weeks and are available to start work in the next two weeks, or (2) are out of work, have found a job and are waiting to start it in the next two weeks.
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Unfunded scheme
A defined benefit scheme, usually in the public sector, in which liabilities are not underpinned by a corresponding fund or funds. Contributions made by or on behalf of active members are used to make payments to pensioner members (see also: Pay As You Go).
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Unit trusts
A collective investment fund in which new units are created when a new investor joins the fund and are cashed in when an investor leaves.
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Unquoted shares
See quoted shares.
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Unsecured pension (USP)
A form of income drawdown. A USP allows a pension scheme member to continue to invest their pension fund while drawing a limited income.
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Upper Earnings Limit (UEL)
The upper limit on earnings for the purposes of calculating entitlement to State Second Pension. Also the upper limit for most employee National Insurance contributions.
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Upper Earnings Threshold (UET)
An earnings threshold below the Upper Earnings Limit, which affects the accrual of State Second Pension.
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Weighted average
A weighted average is used when averaging two or more values that relate to different numbers of cases. For example, if 10 people earn an average of £15,000 a year and 90 people earn £20,000 a year, the average earnings of the group of 100 people is clearly not the simple average of £15,000 and £20,000, which is £17,500. The weighted average of earnings must be calculated, by multiplying each value by the number of people to whom it applies, summing the multiplied values, and dividing the sum by the total number of cases.
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Winding-up
See scheme status.
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Working age population
Working age is generally defined as 16 to State Pension Age. In view of the complexities of reporting on the basis of a changing State Pension Age, the Office for National Statistics is now reporting headline rates for employment for the 16 to 64 age group.
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Workplace pension
A workplace pension is a pension which is provided or facilitated via a workplace, principally for employees. It includes both occupational pension schemes and all forms of group personal and group stakeholder pensions.
Contact Details
For statistical enquiries about this topic, please contact:
Pensions Analysis Unit
Email: pensionsanalysis@ons.gsi.gov.uk
Telephone: +44 (0)16 3345 5633
Office for National Statistics Cardiff Road Newport NP10 8XG
