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  HomeAbout Us PensionsKey TermsInheritance TaxInvestmentsWillsAnnuitiesIncome DrawdownLong Term CareEquity Release |
Key Pension Terms ExplainedAlternatively secured pension With effect from April 2011, this has now been replaced by "Post-Age 75 Drawdown". This was an alternative to annuity purchase and was only open to those age 75 and over in a money purchase scheme. The rules on alternatively secured pension are similar to income withdrawal but with different limits. Annual allowance An annual allowance for contributions to pension schemes above which tax charges may apply. Under a money-purchase scheme this is simply the value of the contributions paid in a scheme year. However, under a defined benefit or cash balance scheme it is the increase in the value of a member's rights over the scheme year. Annuity value protection A death benefit that is paid as a lump sum when death occurs during the payment of a lifetime annuity or scheme pension from a money purchase scheme. In general, this is the purchase price less payments made. The scheme administrator becomes liable to a charge to income tax at the rate of 55% on the level of payment made. This is referred to in the legislation as a special lump sum death benefits charge. Benefit crystallisation Whenever a benefit crystallisation event occurs, a certain amount is deemed to crystallise for lifetime allowance purposes. The amount crystallised represents the capital value of the benefit being caught by the benefit crystallisation event. The amount crystallised for each of the 8 benefit crystallisation events is measured in a prescribed way. Dependant  legally married spouseunmarried partner (a 'common-law' husband or wife or someone of the same sex) can be treated as a dependant, even where the relationship was one of financial interdependencechildren - under the age of 23 or older in the case of dependency due to mental or physical incapacityfinancial dependantadult/child who is dependant due to mental/physical incapacityex-spouse if they were married to the member when they first started to take the pension.
Enhanced & fixed protection This applies to people who would like full protection from the lifetime allowance charge when they come to take their benefits. Lifetime allowance The lifetime allowance is an overall maximum on the amount of pension savings that any one individual can accumulate in registered pension schemes without being subject to the lifetime allowance charge. The exact figure will be whatever the 'standard lifetime allowance' is for the tax year concerned is or a multiple of this figure if protection has been granted. From April 2012, the Lifetime Allowance will be £1.5 million. Lifetime allowance charge Anyone who has pension benefits with a value in excess of the standard lifetime allowance after 5 April 2006 will be subject to a tax charge of up to 55% on their excess benefits value known as the lifetime allowance charge. Special rules apply to those with transitional protection. Lifetime annuity Benefits are secured by purchasing an annuity for life from an annuity provider. Pension commencement lump sum This is the new name for tax-free cash. Relevant UK Earnings This means employment income,income which is chargeable under Schedule D and is immediately derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership), andincome to which section 529 of Income and Corporation Taxes Act 1988 (ICTA) (patent income of an individual in respect of inventions) applies.
Relevant UK individual An individual is a relevant UK individual for a tax year if: the individual has relevant UK earnings chargeable to income tax for that yearthe individual is resident in the United Kingdom at some time during that yearthe individual was resident in the United Kingdom both at some time during the five tax years immediately before that year and when the individual became a member of the pension scheme, orthe individual, or the individual's spouse, has for the tax year general earnings from overseas Crown employment subject to UK tax.
Scheme pension Paying a pension for life out of the scheme assets or buying an annuity out of the scheme assets. Secured pension Either a lifetime annuity or scheme pension. Serious ill-health It will be possible for members to totally commute any benefits not yet in payment on the grounds of serious ill-health at any age. Before this can be done the scheme administrator will need to obtain medical evidence that the member's life expectancy is less than 1 year. The amount of the commuted benefits will be tested against the lifetime allowance, and as long as the benefits are less than this they will be paid tax-free. Short service refund lump sum A lump sum benefit paid to a member of an occupational pension scheme because they have stopped accruing benefits under the scheme and have less than two years of pensionable service under the scheme. Trivial commutation It will be possible for benefits to be taken on the grounds of triviality, but the following must apply: the scheme rules allow itno previous trivial lump sum paid more than 12 months agoall of the benefits under the scheme have to be taken at the same timethe total benefits value of the individual's pension savings is not more than 1% of the standard lifetime allowance in force at that point e.g. £15,000 from April 2012.the member has some standard lifetime allowance availablethe member is between ages 60 and 75after the payment the member has no rights left in the scheme25% of lump sum will be tax-free, the balance will be taxed at the member's marginal rate.
Unsecured pension Income can be paid in two ways. Either by: Income withdrawal, and/orShort-term annuities.
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