Once the court has designated the percentage of the cash equivalent
transfer value (CETV) from the provider or a suitably adjusted
CETV from a pensions expert in reference to the pension
sharing order, a pension debit will be applied against the scheme
members pension rights. The scheme trustees must record the
pension debit and under section 31 of the Welfare Reform and
Pensions Act 1999 (WRPA) revalue this as a negative
deferred pension at the retirement date of the scheme member.
Provisions introduced in the Finance Act 1995 allowed members
of personal pensions to opt for withdrawals from their pension
fund, known as pension drawdown, rather than acquiring a compulsory
purchase annuity or pension
annuity with the pension remaining invested in an insurance
company fund. This allows the member to have more control over
their pension, but must still purchase an annuity at the age
Income drawdown is higher risk than a pension annuity and is referred to as an unsecured pension. There is no requirement to take an income, however the maximum income that can be drawn is 120% of a comparable annuity for a single person at a given age as determined by the Governments Actuaries Department (GAD) and results shown in the drawdown rates.
Significant advantages of income drawdown are the ability to take the tax free lump sum of 25% while leaving the pension fund invested and improved death benefits for a spouse or beneficiaries. An alternative route could be to use phased
retirement where only part of their fund is used for
a compulsory purchase annuity. Both pension drawdown and phased retirement will require
a fairly large initial fund value in order to make it
worthwhile, usually about £100,000 after tax free cash.
If a combination of drawdown and phased retirement is used the individual can use part of the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuities. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised annuity quote offering guaranteed rates.
If the annuitant wants to participate in equity returns in the
future but with less risk to income, it is possible to do so
through a with
profits annuity. Here bonuses are declared and added to
the annuity based on the performance of the With Profits fund
and the volatility is smoothed out over time with the potential
of increasing income in the future.
This person could be a pensions consultant or actuary where
information is required in relation to an occupation pension
scheme or retirement projections.
Where an individual is retiring, they can seek advice from an
annuity and pension bureau with IFAs that also have the qualification
K10 (retirement options). This means that all aspects of retirement from a compulsory
purchase annuity or pension
annuity to pension
drawdown and phased
retirement can be considered by the advisers.
The adviser will be a competent designated individual with the
additional qualification G60 Pensions that is recognised under
permitted activity 13 of the FSA Handbook of Rules and Guidance.
This will allow specialist pension
transfer advice for a defined benefits occupational pension
scheme, such as a final salary pension and would be relevant
in divorce cases where an external transfer is required as a
result of a pension
Where the cash equivalent transfer value (CETV) is not sufficient
to produce a fair value for the retirement benefits, the pensions
consultant will be able to conduct a pension audit to determine
a suitably adjusted
CETV reflecting the circumstances and specific needs of
the parties concerned. The
parties should also have sufficient confidence that the pensions
expert is knowledgeable in the area of pensions on divorce.
In an occupational pension scheme such as final salary pension
or a public service scheme it is often the case that only a
members basic salary is considered for pensionable earnings,
although this will be determined by the employers pension scheme
definition of final
remuneration. Other taxable income received such as bonuses,
overtime, commissions and certain benefits in kind are pensionable
with maximum tax relief on contributions of 15.0%.
The member will usually use up this allowance by investing through
a company additional voluntary contribution (AVC)
pension or a separate free-standing additional voluntary contribution
as final salary
pension rules will not allow a member to correct a pension
contribution shortfall, other than in circumstances where added
years can be purchased, if available and depending on the members
A pension fund represents a members pension rights accrued within
a money purchase scheme such as a personal pension or stakeholder
pension or an occupational
money purchase scheme. The pension fund value will depend
on the contributions made and investment return and at retirement the member can buy an annuity with the option to use an open market option to search for the highest pension annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities quote offering guaranteed rates.
An occupational final salary pension does not have an actual
fund value. Only through actuarial calculation can a notional
cash equivalent transfer value (CETV)
be determined giving a fund value were the scheme member to
leave at that date.
An unfunded public
service scheme cannot show a member their fund value today
because technically there is no fund as the benefits are guaranteed
by statute. This scheme can only show a projection of retirement
benefits at a members retirement
age including a pension income and tax free lump sum. They
would however, show a transfer value if the scheme member wished
to make a pension transfer to another scheme.
A pension fund withdrawal (PFW) is defined in the Financial
Services Authority (FSA) Handbook of Rules and Guidance. This
states that in relation to a decision of a customer, in respect
of a personal
pension, to defer the purchase of an annuity and to take
within the meaning of section 630 of the Income and Corporation
Taxes Act 1988 (ICTA)
as amended by section 58 and schedule II of the Finance
Act 1995, and any provisions amending or replacing it;
under interim arrangements in accordance with section
28A of the Pensions
Schemes Act 1993 (PSA 93), as inserted by section
143 of the Pensions Act 1995, and any provisions amending
or replacing it;
||In respect of
an election to make pension fund withdrawals, a reference
in the rules to a consumer, an investor or a policyholder
includes, after the persons death, his surviving spouse
and/or anyone who is, at that time, his dependent.
The PFW is also known as pension
drawdown and the income must be supported by the critical
At the retirement age of the scheme member a pension income
is one of the retirement benefits that can be taken from the
fund value, in the form of a pension annuity or compulsory purchase annuity with the option to use an open market option to search for the highest annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities quote offering guaranteed rates.
The amount of pension income will be influenced by; the members
age; the duration and contribution to all pensions; the annuity
rates at that time; whether the future income is escalating
to protect against inflation at say the retail price index such
as using RPI
escalation; and the expected good health or otherwise of
Where an individual is suffering from a critical illness, they can enhance the pension income with an impaired
life annuity if underwriting
can expect a detrimental impact on life expectancy. The pension
income is considered by the HM Revenue & Customs to be relevant
earnings and they will be taxed accordingly.
Law Review Committee
Set up as a result of £600 million of funds going missing
from pensions schemes within the business empire of the late
Robert Maxwell in 1991, the Pensions Law Review Committee (PLRC)
reviews all aspects of the legal protection of pension scheme
In particular, the committee's 1993 report concluded that trust
law was 'broadly satisfactory and should continue to provide
the foundation for interests, rights and duties arising in relation
to pension schemes'. The PLRC conclusions were accepted by the
government along with other recommendations for extra strengthening
and regulating methods where trust law was inadequate and incorporated
in the Pensions
linked term assurance
The rules applying to personal pensions or retirement annuity
allow term assurance to be incorporated within the premiums
paid into these schemes. There is a limit to the proportion
allocated to purchasing term assurance, however members can
claim tax relief at their highest rate on the premiums paid.