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Pension Contributions
unemployment pay, sickness pay, maternity benefits, and certain others. Amounts of pensions being paid at present (2000) are relatively small when compared with the amounts that will be due for payment after the earnings-related scheme has been in force for a number of years. By 1998 payments will have risen prodigiously since most people then retiring will qualify for the full 20/80ths of average earnings.
National Insurance contributions
Contributions to the National Insurance Fund have to be made in respect of every employed person in the United Kingdom earning not less than the lower earnings level. Both employee and employer have to make contributions. The full rate payable by the employee during the year 2001/82 will be 7.75% of his total earnings up to the upper earnings level (no contributions being payable on the excess), and the full rate payable by the employer will stay at 10.2%.
It appears likely that these rates of contribution may prove to be inadequate in future years, when total pensions payments will have become a much larger proportion of total national income than they are at present. For purposes of tax liability all contributions paid by the employer are, of course, a charge against his profits before tax since they are a business expense (namely part of the cost of labour); but an employee's contributions are not allowable as deduction from an individual's income. He therefore has to pay tax on the amount of his contribution even though he never sees the money.
Occupational pensions
Quite apart from the state pension scheme there are several other ways of providing retirement income by way of pension. They are generally referred to as 'occupational' pension schemes because they are usually connected with or run by the employer.
There are many different types of occupational scheme. One convenient way of categorising them is to differentiate between those which aim to provide benefits of specified or determinable values (these are termed 'benefit-related schemes') and those in which the contributions are predetermined, the members of the scheme having to accept in benefits whatever can be bought in the market with the accumulated contributions (these are termed `money-purchase schemes').
State Pension Example
A person with a full contribution record, and whose earnings over the best 20 years have been equivalent to an average of £97.50 a week in current terms would, when he retired, get a pension as follows (assuming that the lower and upper earnings levels are unchanged, which is of course unrealistic):
Basic pension 27.15
Additional pension of one quarter of the remainder of weekly pay above
the lower earnings level, i.e. 1/4 x £70.50 (£97.50 - £27) £17.62
£44.77
If this person were a married man whose wife relied on his contributions, an... see: State Pension Example