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4.3 Eligibility for Personal Pensions

  • Under the defined contribution tax regime applying from 6th April 2001 virtually everybody under 75 is able to contribute to a personal pension. This will include most active members of occupational pension schemes who previously could only have a personal pension in the limited circumstances detailed below. For the first time, individuals without earnings will be able to contribute to a pension via a stakeholder pension.

  • Those eligible include:


    1. employees;
    2. the self employed;
    3. individuals who do not have earned income e.g. carers, housewives and the unemployed;
    4. certain active members of occupational pension schemes and
    5. children, if the plan qualifies as a Stakeholder personal pension, because these do not have a minimum eligibility age.

  • An active member of an occupational pension scheme will only be eligible for concurrent membership of a personal pension if:


    1. the member is not, and has not been, a controlling director in any of the previous five tax years. The five year period commences on 6.4.2001)
      and
    2. the member's grossed up remuneration does not exceed £30,000 pa in any one of the previous five tax years. The five year period commences on 6.4.2001.

      Where such members are allowed to also contribute to a personal pension the amount of contributions is restricted to £3,600 p.a.

  • Prior to 5th April 2001 PPPs could be effected by anyone below age 75 who had earned income which was not covered by an occupational scheme.

  • If an employee has a job which offers membership of an occupational pension scheme, there is a free choice between the company scheme and a personal pension. There are very few instances where a client is likely to be better off by not joining. The adviser should take great care in this area and files should be well documented concerning advice given to the client and advice taken.

  • Prior to 5th April 2001, an individual could not participate in an occupational pension scheme and have a personal pension but there were exceptions to this rule:


    1. If the occupational scheme provided only dependants' benefits by cash sum and/or pensions, the individual could also have a personal pension.
    2. Members of occupational pension schemes who were also entitled to SERPS (i.e. they are contracted in to SERPS) could have had a 'rebate only' personal pension scheme to contract out of SERPS. Contributions could not be made by the individual, the only contributions permitted were the Department of Social Security (DSS) N.I. rebate payments.
    3. Occupational pension scheme members could have had a personal pension which was used only to accept a transfer payment from another scheme.
    4. Individuals with 2 or more sources of income could make personal pension contributions in relation to any source which was 'non-pensionable'; for example, an office worker could be a member of the employer's occupational scheme but may have had a second source of income as a self employed musician. A PPP on these self employed earnings could have been established.
    5. Some doctors and dentists in general practice are employed directly by the NHS but are treated as self-employed for tax purposes. Special arrangements can be made, enabling them to receive tax relief on both their NHSPS contributions and personal pension contributions.

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