This is the last in a series of four articles describing the packaged investment products in relation to which the Law Society may authorise firms to conduct business.

In the previous articles (see (1997) Gazette, 14 May, p 29; 29 May, p 39 & 11 June, p 291 we considered protection products and collective investments and this article deals with the third type of packaged product, namely pensions.The most striking development in the pensions world over the past decade has been the decline of the traditional final salary occupational pension scheme and the increase in personal provision.

This can be ascribed to three factors: reduced permanency of employment; the increased costs involved in maintaining occupational schemes; and the introduction of the personal pension plan (PPP).The underlying shift has been from final salary to money purchase; ie from defined benefit schemes to defined contribution schemes.

Employers have been quick to appreciate the advantages of escaping the open-ended obligation imposed by final salary schemes, which guarantee benefits as a proportion of employees' final salaries and replacing this with arrangements which shift onto the employee the risk that investment returns may not produce the required levels of benefit.Employers have moved into money purchase at two levels.

The Executive Pension Plans (EPPs) introduced by the Finance Act 1970 continue to provide the means of securing bespoke benefits for senior executives, whether insured or self-administered, and whether in addition to or in lieu of occupational scheme membership.

For their workforces, companies have been able to choose between company money purchase schemes which could either be contracted into the SERPs scheme (CIMPs) or contracted out (COMPs).A third alternative is for the employer to avoid involvement in scheme administration by establishing a bulk deal with a PPP provider, to encourage employees to make their own provision on terms which would not be available to them individually.In the event, the increasing cost burden placed on company schemes -- the latest twist having come from the Pensions Act 1995 -- has all but driven COMPs out of the market and has produced a wholesale movement to what have become known as Group PPPs.Meanwhile, special situations have been addressed by special products.

For members of occupational schemes wishing to make additional personal contributions, free-standing additional voluntary contracts (AVCs) are available; while scheme leavers with accrued benefits have been able to transfer these into s 32 buy-out bonds, in which the value of accrued SERPS benefits can be guaranteed.

However, both types of contract are affected by the process of simplification.

The replacement under the Pensions Act 1995 of guaranteed minimum pensions (GMPs) with 'equivalent benefits' has placed a question over the future of transfer policies; while the government is proposing to bring the rules for free standing AVCs (FSAVCs) into line with those for PPPs.

In consequence of this increasing polarisation between final salary occupational schemes and GPPs, decisions on whether or not to contract out of SERPs have also been devolved to the individual.Rebate-only PPPs, whose sole function is to receive the National Insurance rebate for contracted-out employees, can operate alongside both contributory PPPs and COMPs and have therefore become the preferred medium for individual contracting-out.When contracting-out through the PPPs was introduced in 1988, the government was keen to reduce the long-term demands on state provision and offered a flat-rate rebate, regardless of age, together with generous incentives to encourage the young to contract out.

The emphasis has now swung to dissuading those who have already contracted out from contracting back into SERPs and consequently with effect from April 1997 age-related rebates have been introduced.For the self-employed, the options are more limited.

S 226 Retirement Annuity Contracts (RACs) have been replaced by PPPs though existing RACs may be maintained alongside PPPs and a yearly decision can be taken as to whether the different contribution limits favour further investment in one or the other.

There is also an interesting new variant of PPP, namely the 'income withdrawal' plan, which was introduced in order to assist policyholders whose retirement coincided with a period of low annuity rates to delay purchasing their pension annuity.

This plan enables PPP holders (and prospectively EPP holders) any time after the age of 50 to transfer the value of their accrued contracts into a new plan from which a proportion of the investment income can be withdrawn, within limits laid down by the Government Actuaries Department.The result is that the tax-exempt pension investment fund can be maintained until up to the age of 75 and will form part of the estate on death.

Meanwhile tax-free cash can be taken out when the income withdrawal plan is effected, thus incidentally giving PPPs a fillip as a medium for mortgage repayment.Many income withdrawal plans are arranged as self-invested PPPs (SIPPs) which enable policyholders and advisers to agree a purpose-built investment portfolio which addresses the time scales and varying income needs of each individual.Pensions have traditionally accounted for the major part of the business of most financial advisers, but the pensions mis-selling scandal has curtailed activity.

All the financial services regulators now insist that persons who are qualified to undertake packaged products business must seek special approval to undertake transfer business and the Personal Investment Authority (PIA) is proposing to demand an additional level of qualification.Meanwhile the Law Society has already gone one stage further by requiring that firms which it authorises must demonstrate the same higher level of competence if they wish to undertake almost all types of pensions business other than that involving individual PPPs.With an expanding retired population and reduced state provision, pensions are perceived as the major growth area of financial services.

Solicitors who understand the synergy with their legal work and commit themselves to the necessary training stand to reap rich rewards.