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   Safeguarded rights    Scheme trustees    SIB
   Salary sacrifice    Section 226 policies    Segmentation
   Scheme member    Section 32 policies    Savings

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Safeguarded rights
As the result of divorce or nullity of marriage and the making of a pension sharing order, the government wish to ensure that the safeguarded rights as part of the pension credit are securely protected and applied for their intended purpose of providing an income at retirement. This has been achieved by section 36 of the Welfare Reform and Pensions Act 1999 (WRPA) inserted a new part III of the Pension Schemes Act 1993 (PSA 93). This is further outlined in subordinate legislation through the Pension Sharing (Safeguarded Rights) Regulations 2000.

The spouses pension rights derived from the pension scheme member of a contracted out occupational pension scheme or appropriate personal pension (APP) must be transferred to the former spouse as safeguarded rights and distinguished from the contracted out rights of the scheme member. Safeguarded rights will have been financed by National Insurance (NI) contributions and will be subject to the same conditions that apply to post-1997 earnings related contracted out or protected rights.

Schemes will not have to offer survivors' pension rights from safeguarded rights and will not be tracked or monitored by the contracted out employments group (COEG). This means that the scheme trustees must keep a record of the former spouses rights as well as details of the pension sharing order and record the percentage of the share against the members pension.

Salary sacrifice
A scheme member can agree a salary sacrifice with the employer whereby a reduced salary is exchanged for extra pension contributions paid to an occupational pension scheme, such as a final salary pension or money purchase scheme, by the employer. This will save the employer National Insurance (NI) contributions on the salary sacrificed.

The advantage to the member of a money purchse scheme is that the extra contributions of 30%, in the case of a basic rate tax payer, would result in a larger pension fund and hence a larger commutation to a 25% tax free lump sum. At retirement the individual can use the balance of the increased fund to buy an annuity and has 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.

However, it is important to note that salary sacrifice will reduce the members definition of pensionable earnings for maximum retirement benefits, death in service benefits, widows pension and state benefits.

It is common for a couple on judicial separation, divorce and nullity of marriage to have a cash balance for emergencies in a bank or building society account. These amounts form part of the matrimonial assets and need to be identified as part of the overall assets to be divided by the parties, including both individual and joint accounts.

It is important to ensure that on divorce any bank or building society account held in joint names should be closed and replaced with single name accounts in order to avoid any future problems relating to signatures for withdrawals. The parties may also have National Savings and Investment bonds and certificates. In general these can be transferred to the other spouse without tax consequences.

If the parties invest in a Tax exempt special savings accounts (TESSA), a financial order from the court as a result of divorce may require the transfer of part of a TESSA. Where this is within the five year term an early withdrawal of capital will mean that all the interest earned to that date will become taxable. The provider may also impose a penalty for early surrender.

Scheme member
An individual that has qualified under the scheme rules for benefits within an occupational pension scheme, such as a final salary pension or a money purchase scheme, such as a personal pension or stakeholder pensions is known as a scheme member. Since the government introduced stakeholder pensions on 6 April 2001 an individual can become, and remain a scheme member with as little as £20 invested in a pension fund.

For a final salary pension, eligibility for scheme membership may be deferred by a waiting period initially. Membership for two years or less may result in the return of personal contributions to the scheme member. For membership of two years or more the individual can remain a scheme member until retirement age or until a pension transfer is made, if sooner.

Scheme trustees
This can be an individual, a number of people or independent institution that are responsible for the management of a trust in accordance with the Trust Deed. Scheme trustees have the power to select any investment they wish in order to adhere to the Trust Deed.

The activities of scheme trustees come under the jurisdiction of the Occupational Pensions Regulatory Authority (OPRA) that has extensive powers as set out in Part I of the Pensions Act 1995. These include:

The power to remove or suspend a trustee from acting:
To appoint a new trustee to replace a removed or disqualified trustee;
Winding up pension schemes in certain circumstances;
To modify pension schemes for certain purposes;
To impose civil penalties;
To apply to the court for an order to prevent the misuse or misappropriation of pension scheme assets;
To direct the trustees to make payments of benefits;
Apply to the court for an order requiring the restitution of pension scheme assets.

Section 226 policies
This section originates from the Income and Corporation Taxes Act 1970. Section 226 policies will allow an individual to purchase his or her own pension and includes a lump sum death benefit. From 1 July 1988 a Section 226 contract was replaced by personal pensions. A Section 226 offers cash commutation of up to 33.0%, which is higher than a personal pension giving 25.0%. Therefore individuals should usually retain an existing Section 226 for their retirement.

Section 32 buyout
Paid-up pension rights and entitlements from a previous employment can be transferred into section 32 buyout. The benefits from section 32 buyout policies will not be available until retirement. By transferring to a life assurance company offering more beneficial rates, the member could improve on the existing benefits.

Securities and Investment Board
Created by the Financial Services Act 1986, the Securities and Investment Board (SIB) was responsible for the activities of the self regulating organisations (SRO) and regulatory policy in general. In October 1997 all the functions of SIB were transferred to the Financial Services Authority (FSA).

For a private pension scheme such as a personal pension or if prior to 1 July 1988, retirement annuity policies (RAPs) it is usually the practice to issue up to 1,000 separate but identical pension arrangements within the same policy and this is called segmentation. This segmentation is used in phased retirement and the advantages of this is that it:
Allows the individual to retire gradually as relevant earnings from their work reduce;
Will allow the fund to continue to grow in a tax free regime;
Allows the annuity rate to improve as the member becomes older;
Allows the individual to retain any lump sun death benefit that would be paid free of income tax and inheritance tax (IHT).
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