Case study 06.01.2009
Read our case study on income planning to find out how a company director, close to retirement and with little pension provision, can start funding for retirement.
Read More >>>Glossary
A
Active member
An individual who is accruing benefits under the scheme.
Adequate value
The value needed as security for a loan to an employer which will not trigger any unauthorised payment charge if:
- the market value of the assets charged when the loan is given is at least equal to the value of the loan;
- the value of the assets falls after the loan is made to an amount less than the outstanding loan and the reduction in value is not attributable to any steps taken by the sponsoring employer or a connected party (this is to prevent value being taken out of the security after the loan is made);
- the security takes priority over any other charge over the assets (i.e. must be a first legal charge).
Alternatively secured pension
A pension payable from age 75 which is an alternative to purchasing a lifetime annuity or receiving a scheme pension.
The amount of pension that can be drawn down is between 55% and 90% of the amount of annuity that could be provided using the Government Actuary's Department's annuity rate applicable for a person age 75.
Annual allowance
The maximum contribution which can be paid to all pension schemes in respect of a member and receive tax-relief in any one tax year.
The Chancellor of the Exchequer will publish the Annual Allowance every five years.
| Tax Year Ending | Annual Allowance |
|---|---|
| 5/4/2007 | £215,000 |
| 5/4/2008 | £225,000 |
| 5/4/2009 | £235,000 |
| 5/4/2010 | £245,000 |
| 5/4/2011 | £255,000 |
Annual allowance charge
A tax charge that must be paid if pension contributions for a member in a tax year exceed the annual allowance.
The person liable is the member and the rate of charge is 40%.
The annual allowance charge will not apply in a year where a member takes their entire benefits from the scheme.
Annuity
See Lifetime Annuity
Annuity protection lump sum death benefit
A lump sum benefit payable upon death if the member
- had not reached the age of 75;
- is paid in respect of money purchase benefits and
is paid in respect of a member who was in receipt of a scheme pension or lifetime annuity.
Arrangement
A section of a registered pension scheme, which can be used to provide benefits on a money purchase basis, a defined benefit basis, or both in respect of the same member.
Associated employer
An employer that is associated to a sponsoring employer of the registered pension scheme which directly or indirectly:
- controls the sponsoring employer;
- is controlled by the sponsoring employer;
- is controlled by a third party who also controls the sponsoring employer.
Authorised employer loan
A loan, fully compliant with legislation, made by a pension scheme to a sponsoring employer.
Authorised employer payment
Payments that a scheme may make to a sponsoring employer that comply with legislation.
Authorised member payment
A payment a registered pension scheme is allowed to make to or in respect of a member of the pension scheme. The only permitted payments are pensions, death benefits, lump sums, recognised transfers, scheme administration payments and pension sharing orders.
Authorised surplus payment charge (payment of surplus to employer)
A 35% tax charge on the payment made to a sponsoring employer from a pension scheme where a surplus has arisen in the scheme fund.
B
Benefits (provided by scheme)
Payments made or benefits provided from sums or assets held by the scheme.
Link to Benefits of the Rowanmoor Pensions SSAS - Member's benefits.
Borrowing
A consideration that is treated as borrowing to a registered pension scheme that requires repayment from assets held for the purposes of the scheme.
A registered pension scheme may borrow up to a maximum of 50% of the net scheme assets.
C
Cash balance scheme
An arrangement which is a type of money purchase scheme and receives a guaranteed return on its investments.
Chargeable gain
The profit made on the disposal of an asset. A registered pension scheme is exempt from capital gains tax, which is the chargeable gain made on the disposal of certain assets.
Charity
Any body of persons or a trust established for charitable purposes only, which is registered with the Charities Commission.
Common Investment Fund
A fund established, within a Family Pension Trust, and used by some or all of its members to jointly invest in an asset or assets.
Compensation payment
An authorised payment made in respect of a member's liability to a sponsoring employer in respect of a criminal, fraudulent or negligent act or omission by a scheme member.
Connected party
A connected person is:
- a scheme member;
- a scheme member's husband or wife;
- a scheme member's relative;
- a scheme member's husband or wife's relative;
- a scheme member's business partner and their husband, wife or relative;
- a company controlled by a scheme member either alone, or with any persons listed above, where the participating employer(s) is not controlled by a scheme member alone or with any of the persons listed above.
Relative, means a brother, sister, ancestor or lineal descendant. It does not include nephews, nieces, uncles and aunts.
Contribution
A payment made to a registered pension scheme for the purpose of benefit provision.
Controlling director
A member who, at any time after 16 March 1987 and within 10 years of retirement or leaving service or leaving pensionable service, has been a director and, either on his or her own or with one or more associates has beneficially owned or been able to control, directly, indirectly or through other companies, 20% or more of the ordinary share capital of the company. For the purposes of this definition:
- associate means in relation to a director, any relative (i.e. brother, sister, ancestor or lineal descendant. It does not include nephews, nieces, uncles and aunts) or partner, the trustees of any settlement in relation to which the director is, or any relative of his or her (living or dead) is or was, a settler and, where the director is interested in any shares or obligations of the company which are subject to any trust, or are part of the estate of the deceased person, the trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased, and
- the expression 'either on his or her own or with one or more associates' requires a person to be treated as owning or, as the case may be, controlling what any associate owns or controls, even if he or she does not own or control share capital on his or her own.
Crystallisation
The use of all or part of a fund to provide benefits is known as a crystallisation of the fund.
Crystallisation benefit event (CBE)
Crystallisation event
A crystallisation event takes place when a member draws some form of benefit from a scheme. Each event uses up all or part of the member's lifetime allowance and when this is exceeded, it will trigger a lifetime allowance charge. There are nine such events including taking lump sum and pension, death benefits and transfers to certain overseas schemes.
D
De-registration
The act of withdrawing tax-exempt privileges by Her Majesty's Revenue and Customs which has the power to de-register a scheme and levy a tax charge for serious breach of rules.
De-registration threshold
The amount required for Her Majesty's Revenue and Customs to withdraw scheme registration, presently set if the scheme chargeable payment percentage exceeds 25% of the fund during any 12-month period.
Deferred member
Someone who is not currently accruing benefits under the scheme and who is not receiving benefits.
Defined benefit lump sum death benefit
The lump sum benefit payable on death of a member in a defined benefit arrangement if:
- the member had not reached the age of 75 at their death;
- it is paid before the end of the period of two years beginning with the day on which the member died; and
- it is not a pension protection lump sum death benefit, trivial commutation lump sum death benefit, or winding up lump sum death benefit.
Defined benefits scheme
Where a member's benefits are calculated with reference to their earnings and service i.e. a final salary scheme.
Dependant
Any one of the following:
- a spouse at date of death;
- a child under 23;
- a child over 23 dependent on grounds of physical or mental impairment;
- a person who is not a spouse or child of the member, but
- is financially dependent on the member;
- has a financial relationship with the member and a mutual dependency.
Dependant's alternatively secured pension
An alternatively secured pension that is paid to a dependant who is age 75 or over, following the death of a member.
The amount of pension that can be drawn down is between 55% and 90% of the amount of annuity that could be provided using the Government Actuary's Department's annuity rate applicable for a person age 75
On the death of a member in receipt of an alternatively secured pension the fund may, in certain circumstances, be subject to Inheritance and other taxes.
Dependant's annuity
An annuity that is paid to a dependant following the death of a member.
Dependant's designated funds
Sums or assets held for the purpose of providing a dependant's benefits from a member's unsecured pension fund.
Dependant's scheme pension
A scheme pension that is paid to a dependant following the death of a member.
Dependant's unsecured pension
An unsecured pension that is paid to a dependant following the death of a member.
E
Employer financed retirement benefit scheme
A scheme set up to provide retirement benefits for employees that is not a registered pension scheme, which will not receive any tax privileges after 6 April 2006.
Previously referred to as a Funded Unapproved Retirement Benefits Scheme (FURBS)
Employer sponsored pension scheme
A registered pension scheme only available through an employer, which is run by the pension scheme trustees.
Enhanced lifetime allowance
A lifetime allowance, above the standard lifetime allowance, which may apply for a member if:
- their total pension funds exceeded the standard lifetime allowance on 5 April 2006 and they applied for pension fund protection;
- a pension credit has been received;
- a transfer from an overseas pension scheme has been received.
Enhanced protection
A method of protecting a member's fund plus all future investment growth from the lifetime allowance charge.
Anybody with a pension fund may register for enhanced protection if they think their fund is likely to exceed the lifetime allowance when they take benefits from the scheme.
This could be useful if, for example, the scheme has an investment in a property, which is redeveloped after A-day, achieving a substantial gain and taking the fund over the lifetime allowance. It can also be used in tandem with tax-free lump sum protection where the tax-free lump sum protection entitlement is over £375,000.
Enhanced protection will be lost if contributions are made to any pension arrangements on or after 6 April 2006. Transfers of benefits from other pension arrangements can normally be made without enhanced protection being lost but advice must be taken as this is not always the case.
F
Family Pension Trust
A private registered pension scheme independently established under an individual trust. Anyone may be a member of the scheme, provided they are under the age of 75 when they join and have the consent of the trustees. Members need not belong to the same family.
Final salary scheme
Where a member's benefits are calculated with reference to their earnings and service.
G
Guarantee period
A period of time within which the payment of benefits to an individual are guaranteed. Their guaranteed benefits will be paid to their nominated beneficiary should they die within this period.
Guaranteed annuity rates
A rate guaranteed at the outset of a pension arrangement when converting a member's funds into an annuity.
H
HMRC
Her Majesty's Revenue and Customs.
Formerly known as the Inland Revenue.
Hybrid scheme
A combination of money purchase, cash balance and defined benefit schemes.
I
Income
Relevant UK earnings chargeable under Schedule D or E of the Income and Corporation Taxes Act 1988.
Income withdrawal
A facility to enable members of a pension scheme to withdraw income from the fund to meet their income requirements, between pre-defined limits. This means taking either unsecured pension or alternatively secured pension benefits.
Independent Trustee
A trustee who is not connected with the employer, member or other trustees appointed to advise and assist member trustees in the management of their scheme.
L
Lifetime allowance
The maximum fund that a member can accumulate from all sources without being subject to a tax charge.
The lifetime allowance will be set by the Chancellor of the Exchequer every five years.
| Tax Year Ending | Lifetime Allowance |
|---|---|
| 5/4/2007 | £1,500,000 |
| 5/4/2008 | £1,600,000 |
| 5/4/2009 | £1,650,000 |
| 5/4/2010 | £1,750,000 |
| 5/4/2011 | £1,800,000 |
It is sometimes referred to as the standard lifetime allowance.
Lifetime allowance charge
A tax charge that is applied to funds in excess of the lifetime allowance when a crystallisation event occurs. It is:
- 55% of the excess over the lifetime allowance if the fund is taken as cash;
- 25% of the excess over the lifetime allowance if the fund is taken as pension.
Lifetime allowance enhancement factor
The factor by which the standard lifetime allowance of a registered pension scheme is enhanced for members who are able to protect fund values at 5 April 2006.
Lifetime allowance excess lump sum
The further lump sum payable where the member's lifetime allowance has been fully used to provide benefits. A lifetime allowance charge of 55% is levied on the excess over the member's lifetime allowance before this excess is paid.
Lifetime annuity
A special investment offered by insurance companies as a way of converting capital, usually from a pension fund, into a guaranteed income. The annuity must be payable until the member's death or the end of any guarantee period should the member die within such a period.
Loan
A loan from the pension scheme to another party which:
- does not exceed 50% of the net asset value of the scheme (maximum for all loans);
- has a maximum term of five years;
- is secured as a first charge on assets of adequate value (if made to a sponsoring employer);
- must be repaid in regular capital and interest instalments;
- must be at an interest rate no lower than a prescribed amount if made to a sponsoring employer;
A loan may not be made to members or a connected party.
Lump sum death benefit
The lump sum payable upon death from a member's share of fund.
M
Market value
The price which an asset might reasonably be expected to fetch when sold on the open market.
Member
Any active member, pensioner member, deferred member or pension credit member of the pension scheme.
Member trustees
Members of a scheme who are also trustees and are referred to as member trustees. The trustees are responsible for the scheme's investment strategy and the payment of any benefits.
The member trustees must not be:
- minors;
- persons convicted of an offence involving dishonesty or deception;
- those with undischarged arrangements with creditors;
- disqualified directors;
- persons disqualified from being a trustee by the Pensions Regulator.
Any member trustees finding themselves in one of these categories must immediately resign.
Member's designated funds
Funds or assets held for the purpose of an individual's arrangement that comprise the member's unsecured pension fund at any time.
Member's unsecured pension fund
All assets held for the purpose of the individual's arrangement which:
- have at any time been designated under the arrangement as available;
- have not been applied for purchasing a scheme pension, a lifetime annuity or a short-term annuity paid as income withdrawal.
Relevant uncrystallised funds for a member are treated as having been designated under the arrangement by age 75 for the payment of unsecured pension.
Member-directed pensions
A registered pension arrangement, where the investment decisions are controlled by the member(s).
Minor
A member of a registered pension scheme who is under 16 years of age, or 18 if not in full time employment.
Money purchase benefits
Benefits that can be provided by the fund built up in a money purchase scheme to provide benefits for a member.
Money purchase scheme
Where a member's entitlement is determined by the size of their accrued interest in the scheme. This will be based on contributions, transfers of other benefits and investment return.
N
Nominated beneficiary
A person or body that is nominated by an individual to receive lump sum death benefits. The nominated party is not limited to an individual or dependant. It could include such bodies as charities, societies or clubs.
Normal minimum pension age
Currently this is age 50. From 6 April 2010 it will be age 55.
O
Occupational Scheme
A pension scheme established by an employer to provide benefits for any or all of its employees.
Overseas pension scheme
A pension scheme, other than a registered pension scheme, which is established in a country or territory outside the United Kingdom and satisfies any requirements set by HMRC.
P
Participating employer
Any employer, including the principal employer, who participates in a registered pension scheme.
Payments by registered pensions schemes
These can be made from the scheme in the following ways:
- permitted pension and pension commencement lump sum payments;
- death benefits;
- recognised transfer;
- scheme administration payments;
- pension sharing orders;
- authorised surplus payments;
- authorised employer loans;
- employer administration payments.
Any payment or benefit that does not comply with legislation will be deemed an unauthorised payment.
Pension commencement lump sum
A lump sum payment made on a crystallisation event subject to the following criteria:
- the member becomes entitled to it when they become entitled to a relevant pension;
- it is paid when all or part of the member's lifetime allowance is available;
- it is paid within the period of three months beginning with the day on which the member becomes entitled to it;
- it is paid when the member has attained the normal minimum pension age (or ill health condition is satisfied);
- it is paid when the member has not reached the age of 75;
- it is not an excluded lump sum.
Any payment not meeting these requirements will be treated as an unauthorised payment.
Pension credit
A credit that arises when a member's pension benefits are shared with their spouse as part of their divorce settlement. The pension credit is the amount by which the ex-spouse's pension rights are increased.
Pension credit member
Someone who has rights under the scheme which are attributable to pension credits, i.e. after divorce.
Pension debit
A debit that arises when a member's pension benefits are shared with their spouse as part of their divorce settlement. The pension debit is the amount by which the ex-spouse's pension rights are reduced.
Pension fund protection
A facility to protect pension benefits accrued prior to 6 April 2006.
Following changes in pensions legislation, which became effective on 6 April 2006, members with funds exceeding or likely to exceed the lifetime allowance on 5 April 2006 have until 5 April 2009 to apply for their accrued benefits to be protected. Primary protection, enhanced protection and tax-free lump sum protection may be taken individually or combined. Those likely to be affected should actively seek advice from their pensions adviser.
Pension input amount
The cost of providing an increase in a member's rights under a final salary scheme in a defined period. The cost is tested against the annual allowance and if this is exceeded there will be an annual allowance charge on the excess.
Pension input period
The period in which increases in members' pension rights are assessed against the annual allowance.
Pension protection lump sum death benefits
A lump sum payable upon death if:
- the member has not reached the age of 75 at the date of death;
- it is paid in respect of a defined benefits arrangement;
- it is paid in respect of a scheme pension to which the member was entitled at the date of death;
- the member has specified that it is to be treated as a pension protection lump sum death benefit.
The amount must be paid within two years of the date of death.
Pension rules
These determine the type of pensions payable as authorised payments. These include ill health, annuities, scheme pension, alternatively secured pension and unsecured pension.
Pension sharing order or provision
An order or provision as described in section 28(1) of the Welfare Reform and Pensions Act 1999 (WRPA99) which is made in accordance with the provisions of that Act. WRPA99 makes provisions to allow financial settlements on divorce or nullity of marriage to include the splitting of pension rights of either or both parties to the settlement.
At the date of the financial settlement the pension rights can be split between both parties (the former couple in marriage) by varying amounts depending on the terms of the settlement.
Pensioner member
Someone who is currently in receipt of benefits from the scheme.
Pensions regulator
The regulatory body for work-based pension schemes in the UK. Visit www.thepensionsregulator.gov.uk for more information about their services.
Permitted margin
The amount by which a member's pension may increase before it is treated as a further benefit crystallisation event.
Permitted maximum
The maximum pension commencement lump sum that can be taken without it being treated as an unauthorised payment. For a member without the benefit of protection this will be 25% of their uncrystallised fund.
Personal pension
A pension policy taken out by an individual to provide pension benefits.
Personal representatives
A person who represents the interests of a member who has died.
- In the United Kingdom, this will be the person responsible for administering the estate of the deceased.
- In a country or territory outside the United Kingdom, this will be the person(s) having functions under its law equivalent to those of administering the estate of the deceased.
Primary protection
A method of providing protection to a member's fund, which is over the lifetime allowance on 5 April 2006 from the lifetime allowance charge. It protects the value of the member's fund and growth on the protected fund, limited to the increase in the lifetime allowance. If primary protection is taken the member will be entitled to an enhanced lifetime allowance, known as a personal lifetime allowance, when they take benefits from the scheme.
Primary protection cannot be used to protect a fund below the lifetime allowance.
Contributions may continue to be made but this may not be advisable.
Principal Employer
An employer in which the special powers and duties in relation to the trust, such as appointment and removal of trustees and amendment of provisions are vested.
R
Recognised overseas pension scheme
An overseas pension scheme established in a country recognised by Her Majesty's Revenue and Customs, from or to which transfer payments may be made without triggering an unauthorised payment charge.
Recognised transfers
A transfer of a member's rights to another registered pension scheme or a recognised overseas pension scheme.
Registered pension scheme
A pension scheme registered under Chapter 2 Part 4 of the Finance Act 2004.
Chapter 2 of the Act, sections 153 to 159 contains all the details for the registration of schemes, appeals against refusal to register by HMRC and de-registration.
Relevant commencement date
The date on which the member's rights begin to accrue under a scheme. For a money purchase scheme this is the date that the first contribution is paid in respect of a member and for a defined benefit scheme the date upon which the member is advised that they have entitlement under the scheme.
Relevant pension schemes
Any registered pension schemes from which the member is entitled to benefits for the purposes of a crystallisation event.
Relevant UK earnings
Income on which tax-relief is able to be claimed in respect of contributions in excess of £3,600 per tax year and which is defined as:
- 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);
- income to which section 529 ICTA (patent income of an individual in respect of inventions) applies.
For an employer to claim tax-relief for contributions it makes on behalf of a member the above will also apply.
Relevant UK individual
An individual who meets any of the following conditions in a tax year :
- has relevant UK earnings chargeable to income tax for that year;
- is resident in the United Kingdom at some time during that year;
- 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;
- they or their spouse has for any tax year general earnings from overseas Crown employment subject to UK tax.
Relevant uncrystallised funds
Funds held in respect of a member that:
- have not been applied for purchasing a scheme pension, a lifetime annuity, or dependant's scheme pension or a dependant's annuity; and
- have not been designated under the arrangement as available for the payment of unsecured pension.
Relevant valuation factor
Used to value a member's pension rights which are expressed as a defined pension e.g. a final salary scheme when testing the value of the member's rights against the lifetime allowance. In relation to any such registered pension scheme, or any arrangement under such a registered pension scheme the factor 20.
However, Her Majesty's Revenue and Customs and the scheme administrator of any registered pension scheme may agree that the relevant valuation factor in relation to the pension scheme, or any arrangement under the pension scheme, is to be a number greater than 20.
Relief at source
When a member contributes to a registered pension scheme, which is not sponsored by an employer, the scheme Administrator will reclaim the tax at the basic rate from Her Majesty's Revenue and Customs. The tax rebate is then added to the member's funds. Any higher rate tax must be reclaimed by the member via self-assessment.
Retail price indexation
The general index (for all items) published by the Office for National Statistics, or if that index is not published for a relevant month any substituted index or index figures published by that office.
S
Scheme Administrator
An appointed person(s) or organisation responsible for the functions conferred or imposed on the scheme Administrator by the rules of the registered pension scheme.
The scheme Administrator must be resident in the UK or another EU state and have made the required declaration to Her Majesty's Revenue and Customs (HMRC).
The scheme Administrator will be responsible for certain critical functions relating to the smooth running of the scheme.
These include, amongst others:
- registering the pension scheme with HMRC;
- completing and delivering a Pension Scheme Return and providing accounts, statements and other documents in connection with the return, if required by HMRC to do so;
- completing certain reports and providing certain information to HMRC within specified time limits (in accordance with The Registered Pension Schemes (Provision of Information) Regulations (not yet laid);
- ensuring certain information is available to other people, for example members, insurers, personal representatives;
- accounting for and making quarterly returns of tax due under Part 4 of Finance Act 2004 to HMRC;
- making an appeal (if appropriate) against any decisions of HMRC made under Part 4 of the Finance Act 2004.
Scheme Administrator employer payment
A payment to an employer for their employee's time spent on the administration or management of the scheme. Any payments made that exceed arm's length terms will be treated as an unauthorised payment.
Scheme administrator payment
A payment to a member for their time spent on the administration or management of the scheme. Any payments made that exceed arm's length terms will be treated as an unauthorised payment.
Scheme chargeable payment
Any payment made by a scheme in breach of HMRC regulations, which includes any unauthorised payment or unauthorised borrowing.
Scheme Operator
The scheme operator is the person who carries out the regulated activity of establishing, managing and winding-up a personal pension scheme or stakeholder pension scheme.
Scheme pension
A pension payable by a life assurance company selected by the scheme Administrator or by the scheme Administrator from the fund.
In both cases the pension is payable at least annually until the later of the member's death or the end of a guarantee period if it is subject to any guarantees.
Scheme returns
A reportable return required by Her Majesty's Revenue and Customs at certain times.
Examples are:
- Scheme Event Report
- Scheme Accounting for Tax Report
- Registered Pension Scheme Return
Scheme sanction charge
A sanction levied on the scheme Administrator of a registered pension scheme, where that scheme makes certain payments that are not authorised.
Self-investment
An investment made by a registered pension scheme in a sponsoring employer or associated employer.
Serious ill health lump sum
A lump sum paid by a scheme to a member equal to their entitlement in the scheme if their life expectancy is less than one year. The following criteria must be met:
- before it is paid the scheme Administrator has received evidence from a registered medical practitioner that the member is expected to live for less than one year;
- it is paid when all or part of the member's lifetime allowance is available;
- it is paid in respect of an uncrystallised arrangement;
- it extinguishes the member's entitlement to benefits under the arrangement;
- it is paid before the member has reached the age of 75.
Short service refund lump sum
A payment by a scheme to a member to refund their contributions if they leave service before qualifying for a benefit because of short service. Such a payment must be made before age 75 and is usually subject to a tax charge.
Short term annuity
An annuity payable for no more than 5 years or until the member's 75th birthday if sooner.
Special lump sum death benefit charge
A charge to Income Tax of 35% where:
- a pension protection lump sum death benefit; or
- an annuity protection lump sum death benefit; or
- an unsecured pension fund lump sum death benefit.
is paid by a registered pension scheme. The person liable to the special lump sum death benefits charge is the scheme Administrator.
Other lump sum death benefits are payable free of tax.
Sponsoring employer
Any employer who establishes or participates in an occupational pension scheme.
T
Tax relief on contributions
The tax relief that an active member or sponsoring employer of a registered pension scheme is entitled to claim on contributions paid.
Tax-free lump sum protection
A method of protecting the tax-free lump sum benefit after 6 April 2006.
If a member's tax-free lump sum entitlement on 5 April 2006 was greater than 25% of their fund, or, more than £375,000 (25% of the initial lifetime allowance of £1,500,000) the member can protect their entitlement by taking tax-free lump sum protection.
Tax-free lump sum entitlement below £375,000 but more than 25% of the fund as at 5 April 2006.
The member's tax-free lump sum entitlement should be certified as at 5 April 2006. The certified amount will be increased in line with the increase in the lifetime allowance until benefits are taken. At this time 25% of the fund accumulated from post 6 April 2006 contributions (subject to it not exceeding the lifetime allowance) can also be taken as a tax-free lump sum.
Tax-free lump sum entitlement above £375,000 as at 5 April 2006.
For primary protection, or where the tax-free lump sum is in excess of £375,000 and no fund protection is taken, the tax-free lump sum entitlement accrued as at 5 April 2006 is valued and then protected. This figure is then increased in line with the increase in the lifetime allowance until the benefit is taken.
For enhanced protection the tax-free lump sum is calculated as at 5 April 2006 as a percentage of the pension benefits and that percentage is protected. When the member takes their benefits the percentage is applied to provide the enhanced tax-free lump sum entitlement.
Transfer lump sum death benefit
The transfer of a member's fund when they die, provided they were in receipt of an alternative secured pension and have left no dependants. The member's fund may be reallocated to another scheme member, who was nominated either by the deceased or by the scheme Administrator in the absence of a member nomination.
Trivial commutation lump sum
A lump sum which may be payable where a member's entitlement under all schemes is less than 1% of the standard lifetime allowance
Such a lump sum must comply with the following :
- it is paid when no trivial commutation lump sum has previously been paid to the member (by any registered pension scheme) or, if such a lump sum has previously been paid, before the end of the commutation period;
- on the nominated date, the value of the member's rights does not exceed the commutation limit;
- it is paid when all or part of the member's lifetime allowance is available.
- it extinguishes the member's entitlement to benefits under the pension scheme;
- it is paid when the member is aged 60 but has not reached 75.
Trustee
A person or company appointed to carry out the purpose of a trust.
U
Unauthorised borrowing
An amount of money that exceeds the maximum borrowing that a scheme is permitted. Any amount exceeding this is unauthorised and will incur an unauthorised payment charge.
Unauthorised employer payment
A payment to an employer that is not specifically authorised is classed as an unauthorised employer payment and could result in an unauthorised payment charge.
Unauthorised payment
An unauthorised payment to the member, employer or both from scheme funds.
Unauthorised payment charge
A tax charge where an unauthorised payment is made which is levied at a rate of 40%.
Liability for the charge is on:
- the employer for payments they receive;
- any member for payments they receive but should the payment have been made after a member died then the person who received the payment will be liable;
An unauthorised payment may be subject to an unauthorised payment surcharge and a scheme sanction charge.
Unauthorised payment surcharge
An additional tax charge of 15% of the unauthorised payment which is levied when the amount of the unauthorised payments made within a 12-month period exceeds 25% of the fund.
Uncrystallised funds
The parts of a member's fund that have not been used to provide any benefits.
Uncrystallised funds lump sum death benefit
The fund or part of a fund of a member who dies before the age of 75 and from which no benefits have commenced to be paid. The fund may be paid to a dependant without tax charge, within two years of the date of death.
Unsecured pension
A pension that has not been secured as a pension for life. Such a pension can be paid as income withdrawal from the scheme fund instead. As the scheme fund can vary, the level of unsecured pension must be reviewed every five years.
The review looks at the level of the member's fund and the annuity that fund could purchase, based on tables issued by the Government Actuary's Department. The maximum payable is 120% of this annuity.
There is a risk that the member's fund may be reduced due to the drawing of the income and poor investment performance. This could result in a lower annuity being available at the next review.
Unsecured pension fund lump sum death benefit.
A lump sum payable where a member dies before age 75 whilst in receipt of an unsecured pension from the fund. It may be paid to a dependant subject to a tax charge of 35% of the payment.
V
Value shifting
The shifting of assets or liabilities to the detriment of the scheme and to the benefit of a third party is classed as an unauthorised payment.