This was 6 April 2006, when many pension rules were changed.
An individual who has benefits currently accruing in a registered pension scheme.
AVCs – Additional Voluntary Contributions
A personal top-up to an occupational pension scheme. Your contributions are eligible for income tax relief.
BCE - Benefit Crystallisation Event
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 assessed for benefit crystallisation event purposes. The amount crystallised for each of the benefit crystallisation events is measured in a prescribed way.
This is the facility to carry forward any unused pension contribution allowances from the previous three tax years to the current tax year. There are restrictions on the allowed sums.
This is when employees leave the additional State Pension (currently the State Second Pension, but prior to April 2002 it was the State Earnings Related Pension Scheme (SERPS) Scheme) and join an occupational pension. Up until 5 April 2012 it was possible to contract-out through a Personal or Stakeholder pension. You receive a pension from the plan rather than the State.
Defined Benefit Scheme
This is an employer sponsored company pension scheme where the pension received is linked to the size of your salary. They are also referred to as final salary schemes.
This gives you full protection from the lifetime allowance charge when you take your pension benefits. This protection is lost if after A-Day contributions are paid to a money purchase scheme, either from you or any employer. You can still accrue benefits under a defined benefits or cash balance arrangement, but the permitted level of accrual is limited.
Fixed Protection 2012
From 6 April 2012 the Lifetime Allowance was reduced from £1.8 million to £1.5 million. Those that applied and were granted Fixed Protection 2012 qualified for a higher Lifetime Allowance of £1.8 million. In order to maintain entitlement to Fixed Protection 2012, no further contributions may be paid into a money purchase scheme and no further benefit accrual must occur in a Defined Benefit/Cash Benefit arrangement.
Fixed Protection 2014
From 6 April 2014 the Lifetime Allowance was further reduced from £1.5 million to £1.25 million. Those that applied and were granted Fixed Protection 2014 qualified for a higher Lifetime Allowance of £1.5 million. In order to maintain entitlement to Fixed Protection 2014, no further contributions may be paid into a money purchase scheme and no further benefit accrual must occur in a Defined Benefit/Cash Benefit arrangement.
Fixed Protection 2016
From 6 April 2016 the Lifetime Allowance was further reduced from £1.25 million to £1 million. Those that applied and were granted Fixed Protection 2016 qualified for a higher Lifetime Allowance of £1.25 million. In order to maintain entitlement to Fixed Protection 2016, no further contributions may be paid into a money purchase scheme and no further benefit accrual above what is known as the “relevant percentage"must occur in a Defined Benefit arrangement.
FSAVCs – Free-Standing Additional Voluntary Contributions
A pension top-up policy for a member of an occupational pension scheme. It is a separate arrangement taken out in your own name and normally run by an insurance company.
GAD stands for the Government Actuary's Department. GAD produces tables of annuity rates on behalf of HMRC, which are used to calculate the maximum drawdown pension that can be taken from a Capped Drawdown pension.
GMP or Guaranteed Minimum Pension
This is the minimum pension which an occupational pension scheme has to provide for those employees who were contracted-out of the State Earnings Related Pension Scheme between 6 April 1978 and 5 April 1997.
An annuity, which continues to pay an income for five or ten years. If you die before the end of the guaranteed period, the pension provider will pay the annuity to your beneficiaries for the remainder of that period.
Individual Protection 2014
Individual Protection 2014 gives members who think that the value of their benefits will be over the Lifetime Allowance when they come to take their benefits, a personalised Lifetime Allowance based on the value of their pension savings at 5 April 2014 (up to a maximum of £1.5 million). It allows members whose pension rights are valued at over £1.25 million (the Lifetime Allowance from 6 April 2014) to protect those rights, subject to an overall maximum of £1.5 million. A crucial difference from Fixed Protection 2014 is that a member can still be an active member of a pension scheme.
This personalised Lifetime Allowance will not be increased unless the Lifetime Allowance increases from £1.25 million to a level greater than the member’s personalised Lifetime Allowance. In these circumstances the member’s personalised Lifetime Allowance would revert to the new standard Lifetime Allowance.
Individual Protection 2016
Individual Protection 2016 gives members who think that the value of their benefits will be over the Lifetime Allowance when they come to take their benefits, a personalised Lifetime Allowance based on the value of their pension savings at 5 April 2016 (up to a maximum of £1.25 million). It allows members whose pension rights are valued at over £1 million (the Lifetime Allowance from 6 April 2016) to protect those rights, subject to an overall maximum of £1.25 million. A crucial difference from Fixed Protection 2016 is that a member can still be an active member of a pension scheme.
This personalised Lifetime Allowance will not be increased unless the Lifetime Allowance increases from £1 million to a level greater than the member’s personalised Lifetime Allowance. In these circumstances the member’s personalised Lifetime Allowance would revert to the new standard Lifetime Allowance
Joint Life Annuity
A joint life annuity provides an ongoing income for a spouse or partner on death.
Lifetime Allowance Charge
This is a tax charge levied on the excess pension benefits above the standard Lifetime Allowance. The charge is 55% if taken as a lump sum and 25% if taken as an income.
Market Value Reduction (MVR)
This is an adjustment made to the value of a withdrawal under a with profits fund if the value of the underlying assets is less than the value of the investment.
Minimum Income Requirement
This is an income in a tax year of at least £12,000. Income for this purpose includes the following:-
- Scheme pensions (including pensions received as a dependant) from a registered pension scheme or from a relevant non-UK scheme;
- Lifetime annuities (including dependant annuities);
- State pensions.
Money Purchase Scheme
A Money Purchase Scheme is a type of defined contribution arrangement. It is set up by an employer to provide income in retirement for its employees.
Pensions are split into Protected Rights paid mostly by the Government or the employer. Non-Protected Rights payments include all benefits purchased by employer or employee contributions.
Open Market Option (OMO)
The option for you to choose which insurance company to buy your pension annuity from. You don't have to buy your annuity from the same company that provides your pension plan. You have the freedom to choose the pension annuity that best suits your needs.
PAYE (Pay As You Earn)
HMRC system for collecting income tax from the pay of employees as they earn it.
Pension Annual Allowance
This is the annual amount that can be invested in a pension plan without a tax charge being applied. It is based on an input period. The annual allowance is currently £50,000 per input period.
Pension Commencement Lump Sum
This is a tax-free lump sum that can be paid when you start to receive a pension.
Earnings on which benefits and contributions in a pension scheme are calculated.
Period of service with a company that is used in the calculation of pension benefits in a defined benefit/final salary scheme.
Pension Input Period Pension
A Pension Input Period is a term over which you measure the amount of your pension saving (pension input) for your pension arrangement
Pension Protection Fund (PPF)
The PPF acts as a safety net for members of under-funded pension schemes whose employer has become insolvent. When the sponsoring employer of a scheme becomes insolvent the assets and liabilities of the scheme are absorbed by the PPF, which then pays out a set level of benefits to the members of the scheme. As the assets of schemes entering the PPF will be less than the value of the benefits that will be paid, the PPF is “topped up” each year via levy payments from the sponsoring employers of all UK private sector pension schemes. The PPF can therefore be thought of as an insurance fund for pension schemes.
Primary Protection is a form of protection from the Lifetime Allowance tax charge for individuals who had accrued pension rights on 5 April 2006 of over £1.5 million and applied to HMRC for protection before 5 April 2009.
Protected Rights are funds held in a pension scheme that are derived from the rebating of National Insurance payments to the scheme where a member has contracted out of the State Second Pension.
Registered Pension Scheme
To benefit from tax privileges all pension schemes must be registered with HMRC. Schemes set up before 6 April 2006 will normally be automatically registered.
Relevant Earnings are those earnings chargeable to UK tax. This includes earnings that are not pensionable under an occupational pension scheme (unless the scheme provides death in service benefits only) or earnings from self-employment.
Retail Price Index (RPI)
The RPI measures inflation. This official measure is calculated each month by taking a sample of goods and services, which the typical household might buy.
Retirement Annuity Contract (RAC)
A RAC is a private pension plan similar to a Personal Pension, but could only be arranged before 30 June 1988.
Section 32 or S32 policy (Buy-Out bond)
A Section 32 Buy-Out policy allows you to transfer the funds and benefits of an employer sponsored pension scheme into a private fund. The scheme allows you to take advantage of the same range of benefits as your original scheme, whilst having the same individual control as a Personal Pension Plan.
A tax-efficient method of increasing the money paid into a pension by giving up part of your salary or a proposed salary increase, so that the sum foregone can be used as an additional employer contribution into a pension.
SERPS (State Earnings-Related Pension Scheme)
The SERPS was a UK Government pension arrangment to which employees and employers contributed between 6 April 1978 and 5 April 2002, when it was replaced by the State Second Pension. Employees who paid full Class 1 National Insurance contributions between 1978 and 2002 earned a SERPS pension. Members of occupational pension schemes could be contracted-out of SERPS by their employer, in which case they and the employer would pay reduced National Insurance contributions.
Single Life Annuity
An annuity that pays you alone a regular income for life.
State Second Pension (S2P)
The State Second Pension was introduced on 6 April 2002 to replace SERPS. This is an extra pension employees may receive depending on the amount they earn and the additional National Insurance contributions they have made. The self-employed do not qualify.
State Pension Age
This is the age at which State benefits may be taken as pension income. The State Pension Age for men is currently 65. The State Pension Age for women is being increased to be equalised with that for men, with the intention that this is completed by November 2018. The State Pension Age will then increase to 66 for both men and women from December 2018 to 2020. Under current legislation the State Pension Age is due to rise to age 68 between 2034 and 2046.
Tax-free lump sum
An amount of cash set by HMRC which you can take free of tax when you draw your pension benefits. Individual pension schemes may have different rules on the amount of tax-free cash you can take.
Unauthorised Member Payment
Is a payment by a registered pension scheme to or in respect of a member of that pension scheme that is not an authorised member payment, or anything which is specifically prescribed as being an unauthorised payment in respect of the member.
With and Without Overlap
With overlap is available to individuals with joint life annuities that have purchased a guarantee. If you die within the guaranteed period then your annuity will continue to be paid for the balance of the guaranteed period at the full rate alongside your spouse's annuity.
Without overlap means your annuity will cease immediately on death and the payment applicable to your spouse will commence. This applies even if you die before the guaranteed period has been discharged.
With and Without Proportion
If an annuity is paid in advance then the first payment occurs at the start of the period. In the case of annuities paid annually this is significant as having an annual annuity paid in arrears would mean waiting 365 days after the annuity starts before the first payment is made. Under Without Proportion, if you select an annuity paid in arrears and die half way through the year, you would receive no payment.
If you choose as an example, to have With Proportion included in your annuity then your estate would as an example receive 6 months income if you have lived 6 months.
Please contact us for futher clarification or more detail.