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Prior to 6 April 2006, UK tax restrictions placedlimits on the maximum benefits thatoccupational pension schemes could provide,and the maximum (or ‘capped’) salary thatcould be taken into account when calculatingthese benefits.Pensions tax simplificationAs from 6 April 2006, the previous tax regimeunderwent fundamental simplification in avariety of respects. It is no longer compulsoryfor pension schemes to limit benefits andcontributions in the manner outlined above.Instead, HMRC now lays down limits on thecapital amount of any savings that may be builtup in a tax-favoured pension arrangement,both in any one year and over the course of anindividual’s life.These are known as the Annual Allowance andthe Lifetime Allowance. From 6 April 2011 theAnnual Allowance will be £50,000 and from 6April 2012 the Lifetime Allowance will fall to£1.5m. Any sums in excess are subject topunitive tax charges. Compliance is primarilythe responsibility of the individual, rather than– as was previously the case – the pensionscheme in question. There are also limits onthe tax relieved amounts that can becontributed each year.Matters are however complicated by the factthat the old regime of complex benefit limits,whilst no longer compulsory, continues toapply to many occupational pension schemes5. Occupational and personalpension schemes - what arethey?Traditionally most occupational pensionschemes were established on a defined benefit(DB) basis, meaning that the level of pensionpayable at retirement was calculated byreference to a formula in the scheme’s rules(these scheme are often known as final salaryschemes as the calculation provided a portionof the individual salary at retirement). Afteremployees have made their contributions , itbecomes the employer’s obligation to inject asmuch additional funding as necessary toprovide the promised level of benefits. Anactuary, who applies probability theory to anumber of financial and demographicassumptions in order to predict the future, willdetermine how much the employer has to payto provide these benefits.A number of changes to the regulatory regimesince the late 1990s, increased longevity andpoor (and volatile) stock market performancein recent years, have led to this type ofscheme falling out of favour with employers.Most have now replaced them with definedcontribution (DC) schemes, which transfer theinvestment risk to the scheme’s members. Insuch a scheme, the assets are simply investedin individual retirement accounts for each ofthe scheme’s members, who invariably havesome element of choice as to how these areinvested. The resulting fund is then used tobuy an annuity from an insurance companywhen the employee retires. Most importantly,the level of pension is not fixed and willdepend on three things: the amount ofcontributions made, the level of investmentreturn obtained on the scheme’s assets, andthe annuity rates in force at the time of theemployee’s retirement.Occupational pension schemes are generallyestablished ‘under trust’. This means that thescheme’s assets are held separately fromthose of the employer that sponsors thescheme, in the hands of individuals known astrustees.These may be senior company staff, orpersons chosen by the scheme’s members(the company’s employees), or both; but theirduties are primarily owed to the members ofthe scheme, rather than to the company thatsponsors the scheme. The trustees’involvement ensures that the security of theassets, from which pensions will be eventuallypaid, is not dependent upon the company’scontinued existence.Personal pension schemes do not havetrustees: instead, insurance companies, whichoperate (and look after the assets of) theseschemes, must meet strict solvencyrequirements laid down by the Government.When an employee leaves a company thatoperates any kind of occupational pensionscheme his benefits will normally remain inthat scheme until he retires, when they willbecome payable to him. Alternatively, at anytime until the employee retires, he may insteadchoose to transfer these benefits to a pensionscheme operated by his new employer or tohis own personal pension scheme.The most common type of pensionarrangement, for new employers in the UK, ishowever a group personal pension plan or astakeholder scheme, which can effectively bepurchased very quickly and easily from aninsurance company. These arrangements, bydefinition, provide pension benefits on aPAGE 19