Press Release

Happy birthday… pensions

8 May 2008

As this month sees the hundredth anniversary of the state pension, ACCA (the Association of Chartered Certified Accountants) extends hearty congratulations to this key area of welfare reform and provides a potted history of its development.

John Davies, head of business law at ACCA, says: “The state pension has been the cornerstone of the UK’s system of social security for a century and has contributed hugely to the achievement of a decent quality of life by those of retirement age. Nonetheless, people today are, on average, spending much more time in retirement than was the case in 1908. Because of this, the cost to the state of improvements in longevity inevitably increases.

“The UK Government, like all others in the same situation, is having to adapt to these changing circumstances – just recently we have seen plans approved to raise the state pension age from the current 65 to 68, and by 2012 we will see the launch of another new attempt to encourage more of us to supplement our basic state pension with additional pension saving. But such is its significance that the state pension is likely to survive, in one form or other, for many years to come.”

ACCA provides the following facts and figures on the history of state pensions:

• In 1908, under the Old Age Pensions Act introduced by Lloyd-George, the new state pension paid 5s a week to men and women aged over 70 – approximately 20% of average earnings at the time.
• The 1921 Finance Act provided tax relief granted to pension schemes satisfying certain conditions.
• The 1925 Contributory Pensions Act established a contributory State scheme for manual workers and others earning up to £250 a year. The pension was 50p a week from age 65.
• In 1942 Sir William Beveridge published his "Social Insurance and Allied Services" report with state welfare proposals.
• The 1946 National Insurance Act introduced contributory State pension for all. Initially pensions were £1.30 a week for a single person and £2.10 for a married couple, paid from age 65 for men and 60 for women, effective from 1948.
• The 1947 Finance Act limited the maximum amount of tax relief on pensions, and the proportion that could be taken as a lump sum.
• The 1959 National Insurance Act introduced a top-up state pensions scheme, based on earnings and known as the graduated pension. It covered earnings between £9 and £15 a week.
• The 1975 Social Security Pensions Act set up the State Earnings related Pension Scheme (Serps). Introduced in 1978, the scheme replaced graduated pensions. Rules for contracting out were also introduced, whereby workers with adequate private provision can give up all or part of the benefits of Serps. In return they pay lower National Insurance contributions.
• The 1980 Social Security Act - Link between state pension increases and average earnings broken by Margaret Thatcher's government. If the link with earnings had not been broken, a basic state pension for a single pensioner would worth about £30 a week more.
• The 1986 Financial Services Act - set out terms and conditions under which investment business could be conducted. Changes to contracting out.
• The 1995 Pensions Act created regulatory and compensation schemes.
• 2001 saw the introduction of stakeholder pensions, a low-cost pensions scheme aimed at people on low to average earnings and helping women save for old age.
• 2002 saw the switch from Serps to the State Second Pension scheme.
• The Pensions Act was enacted in 2007.
• 2008 sees an opportunity for women to boost their state pension or even be in line for a windfall payment under special terms.