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2.2.7 Social Security Act 1986

  • Changes were introduced to SERPS:-


    1. Lifetime earnings became the calculation base, changing from best 20 years' earnings.
    2. Benefits to be based on a maximum or 20%, not 25%, of 'band' earnings, i.e. earnings between lower and upper earnings levels.
    3. Widow's and widower's pension to be 50% of entitlement, (widower's pension accrued after 6/4/88).

  • Changes were also introduced to contracted out occupational schemes with effect from 1988:-


    1. 'Money Purchase' schemes may now contract out.
    2. GMPs, accrued after 6/4/88, to be escalated, once in payment, by the lower of RPI or 3% pa compound.

  • The Act also contained the initial legislation for the 'new style' personal pensions which were to replace retirement annuity contracts from 1st July 1988. Sale of Retirement Annuity Contracts ceased 30/06/1988, but they remained open to receive ongoing premiums.

  • Occupational scheme membership is now voluntary, rather than mandatory as was often the case before.

  • Reduced the 'vesting' age for pension benefit from 5 to 2 years i.e. scheme members now need only 2 years to secure benefits if they leave

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