Pensions: the basics

Who can establish a registered pension scheme?
The ability to establish a registered pension scheme depends on the type of scheme.

Occupational pension schemes
An occupational pension scheme can only be set up by one of the following:

  • An employer (or collection of employers);
  • An insurance company;
  • A unit trust scheme manager;
  • An operator, trustee or depository of a recognised European Economic Area* collective investment scheme,
  • An authorised open ended investment company;
  • A building society;
  • A bank;
  • A European Economic Area* investment portfolio manager;
  • Government Departments or Ministers and UK Parliamentary bodies (such a scheme will be a 'public service pension scheme').

* The European Economic Area includes all member states of the European Community plus Norway, Iceland and Liechtenstein.

Personal pension schemes
Since 6 April 2007, those wishing to establish a personal pension scheme (including SIPP) or a
stakeholder pension scheme can only do so if they get permission from the Financial Services Authority (FSA).
Between 6 April 2006 and 5 April 2007, the criteria for establishing a personal pension scheme was the same as shown above for occupational pension schemes.

Three frequently asked questions.

Who is eligible to join a registered pension scheme?

Anyone under age 75 (whether UK resident or not) can, in theory, join a registered pension scheme. However, scheme providers and trustees may impose their own eligibility criteria - for example, they may restrict membership to relevant UK individuals.
There are also some circumstances where people aged 75 or over can join a pension scheme - for example, where a widow inherits an income drawdown fund on her husband's death or where someone in income drawdown transfers their benefits to a new scheme.
Perhaps more importantly, there are restrictions on who'll receive tax relief on contributions into registered pension schemes.

Who can contribute to a registered pension scheme?

The law allows contributions to a registered pension scheme to be made by:
  • A member of the pension scheme;
  • A member's employer (or former employer); or
  • A third party - this could be an individual, a company or other legal entity (such as a trust).
Of course, pension scheme trustees or providers can decide who can contribute to their pension scheme and don't always accept contributions from everyone allowed by law.
There are also limits on the size of pension contributions that qualify for tax relief. See Annual Allowance

Is there a limit on contributions that can be made to registered pension schemes?

Legislatively speaking, there's no limit on contributions that can be made to registered pension schemes either by the member, their employer, a former employer or a third party.
However, in practice, many pension scheme providers and trustees will only accept contributions from an individual if the contributions qualify for tax relief. Tax relief isn't automatic - the amount of relief received (if any) depends on whether the contribution has been made by:

  • The member;
  • The member's employer (or former employer); or
  • A third party.
In addition, the amount of tax breaks available on pension contributions made by or in respect of an individual in a tax year to registered pension schemes is normally restricted by the annual allowance. For tax years 2009/10 and 2010/11 there were also special annual allowance rules for high income individuals.