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Roger Bennett: Department of Business Studies, London Guildhall University, London, UK
Helen Gabriel: Department of Business Studies, London Guildhall University, London, UK
ACKNOWLEDGMENT: The research assistance of Yvonne Gleeson is gratefully acknowledged.
Introduction
Prior to 1985, most UK employees in pensionable jobs were compelled by their employing organisations to belong to "occupational" pension schemes operated or approved by their companies. The employee would pay between 4 per cent and 6 per cent of his or her salary into a pension fund, the employer making an additional 4 per cent to 6 per cent contribution. During 1985 the UK government legislated to give all employees the right to quit such schemes and transfer into any other pension arrangement of the person's choosing, or not to make any (non-state) pension contributions at all (see Todd and Kandler, 1998). In consequence, the UK insurance companies vigorously promoted their pension products (known as "personal pensions") to members of occupational schemes, in attempts to persuade them to transfer from occupational to personal pensions. The legislation became effective on 1 July 1988, and 550,000 personal pensions were sold during the next four months (Key Note, 1998, p. 25). Senior government ministers openly endorsed personal pension systems (Aldridge, 1997), and demand was further stimulated in 1989 by the government offering rebates on state national insurance contributions to any person who opted out from the "state earnings-related pension scheme" (SERPS) and instead purchased a personal pension (see Association of British Insurers, 1996). (SERPS was a compulsory supplement to an employee's basic national insurance contribution.) The insurance companies increased the intensity of their pensions advertising and sales rose considerably (see Brett, 1989 for details). Five and a half million people transferred out of SERPS into a personal pension between July 1988 and the end of 1993, when the tax advantage was terminated (Hunter, 1994).
Unfortunately, many of the people who switched from occupational to personal pensions or out of SERPS became substantially worse off as a result. Employers' contributions were forfeited, retirement and surviving dependants' benefits were often lower, and benefits themselves were frequently linked to future stock market performance rather than being based on the individual's final salary. Employees who became aware of this could rejoin their original occupational scheme, but only by...