Self assessment
Introduced from 6 April 1996 self assessment represents a significant change in the way of taxing income of the self employed, partnerships and other incomes. Self assessment requires that the tax returns must be made by the 31 January following the tax year in which it relates. If the taxpayer wishes the Inland Revenue to calculate the tax for them, the return must be made by the 30 September following the tax year, or two months after issue if later.

The payment for income tax and National Insurance (NI) will be made on account on the 31 January and the 31 July in the tax year concerned with a balancing payment due on the following 31 January. All personal pension contributions after 6 April 2001 are paid net of basic rate tax so adjustments for the self employed in their self assessment at the end of the tax year are not necessary unless higher rate tax is paid.

Also, for carry back relief, any lump sum personal pension payment to the previous tax year must be made by 31 January of the current tax year. This restriction does not apply to retirement annuity policies (RAPs) that can use both carry back and carry forward relief.


Self invested personal pension
For self employed individuals that want to manage their own pension fund assets, a self invested personal pension scheme (SIPPs) will allow this option. SIPPs operate on a similar basis to insured personal pensions with access to collective funds, except that the Inland Revenue also allows direct investment in UK and overseas quoted securities as well as commercial property. However, between the extremes of an insured personal pension and SIPPs are private managed funds (PMFs).

Unlike small self administered schemes (SSAS), which is a defined benefit regime, the defined contribution regime of a SIPPs restricts the contributions made to that of a personal pension with no facility to make loans to members. Most SIPPs will start with a significant transfer from an existing occupational pension scheme or personal pension. The main advantage of SIPPs to some individual investors or partnerships is the ability to purchase their own commercial property that will then be let back to the individual or partnership.


Self regulating organisation
Under the Financial Services Act 1986, the self regulating organisation (SRO) was set up to be directly responsible for governing investment business. However, under the Financial Services and Markets Act 2000 (FSMA) the SRO will be abolished and their responsibilities have been transferred to the Financial Services Authority (FSA) since N2.


Shares
For individuals that have larger sums to invest, rather than using collective investments such as unit trusts, investment trusts or investment bonds, stockbrokers can construct a portfolio of individual shares. On divorce, judicial separation or nullity of marriage the court may grant a financial order requiring the transfer of shares between spouses.

In this case the transfer should be completed during the tax year of separation when the no gains / no loss treatment between spouse rule applies. If the shares are to be sold so that a cash sum can be transferred to the former spouse, the shareholder will be liable for capital gains tax (CGT) on any gains.

If the shares have been held for a long period of time, there could be allowances available to reduce the chargeable gain such as indexation relief, taper relief and the annual personal CGT exemption of £7,700 for the 2002 / 2003 tax year.

If the parties hold un-quoted shares in a family company it may be difficult to sell the shares due to established agreements on the disposal of such shares. Furthermore, it may be difficult to find a buyer for the shares at that time due to the nature of the family business and the general lack of a market for un-quoted shares.


Simplified defined contribution scheme
Similar to a personal pension, the simplified defined contribution scheme (SDCS) has not been very successful compared to other pension arrangements. Membership to an SDCS is not permitted for a 20% director and concurrent membership is not allowed except with a free standing additional voluntary contribution (FSAVC) scheme.

The maximum contribution to an SDCS is 15.0% for the scheme member but 17.5% for both the member and employer contributions combined, including those to an FSAVC, with up to 5.0% going towards a lump sum death benefit. There are no limits on the retirement benefits from an SDCS and the member is allowed a 25.0% commutation to a tax free lump sum.


Single or joint life
For pension arrangements the only time they have an option or a single or joint life is when the individual uses the 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.

The annuity must be acquired from a pension fund between the ages of 50 to 75 years. It is also possible for a purchased life annuity or a with profits annuity to be bought as a single or joint life. The pension income from a single life annuity will be greater than a joint life annuity due to mortality because it is going to be paid out for a shorter period of time. The annuity is paid for the life of the annuitant and ceases on death.

If the annuitant is married or has a partner that does not have a source of independent income, the pension income can be shared as joint life annuity. A survivors pension is provided offering the spouse the security on the death of the annuitant of an income of either 100% or reducing to 50% or 67% of the original pension annuity.


Small self administered scheme
Following the publication of Memorandum 58 by the Superannuation fund office, now known as the Pension Schemes Office (PSO), small self administered schemes (SSAS) were established in February 1979.

A SSAS can have up to twelve members who are typically controlling directors or senior employees. The SSAS must receive approval from the PSO, appoint a pensioneer trustee to oversee the management and regulation of the scheme and is required to be valued every three years.

A SSAS can be very flexible in terms of the investment choice as it is not limited to insurance funds and can include loans to the employer and the purchase of unquoted company shares.

However, a SSAS is an occupational money purchase scheme and benefits will be limited by PSO regulations based on earnings at retirement and length of service. There is also the opportunity for commutation to a tax free lump sum of up to 1.5 times final remuneration. For a post 89 member, these benefits will be subject to the earnings cap.


Specialist advice
Where an individual at retirement is considering their options, they could seek an annuity and pension firm giving specialist advice from an independent financial adviser (IFA).

Two thirds of people in the UK are retiring today only to accept a poor annuity income from their pension provider, however all have the opportunity to use an open market option that could increased this income by up to 25%. It may be that other options such as pension drawdown or phased retirement would be more suitable than an annuity.

The annuitant could benefit from an enhanced annuity or impaired annuity and this option must be explored before buying the annuity. This could greatly increase the income from an annuity and applies to both a purchase life annuity, that is bought with a lump sum, and a pension annuity.

Advice given by an IFA means that the annuitant benefits from the consumer protection provided by the Financial Services Authority (FSA) if the advice given was not appropriate.


Social Security Act 1973
The introduction of The Social Security Act 1973 (SSA 73), saw a significant improvement in the members pension rights for private sector companies. Prior to this Act members had no statutory rights to any benefits accrued in an occupational pension scheme for members leaving service early.

When the Act was introduced on 6 April 1975 it allowed for the preservation of a members pension rights, known as preserved benefits, after 5 years of service and would include both employee and employer contributions. For less than 5 years service the scheme member was entitled to a refund of contributions that they had personally made to the scheme.


Society of Pension Consultants
The Society of Pension Consultants (SPC) is the only body to focus on the whole range of pension related functions across the whole range of non-State provisions, through a wide spread of providers of advice and services. The SPC is the body that represents providers of advice and services needed to establish and operate personal pension and occupational schemes and related benefit provisions. The majority of the 500 largest UK pension schemes and thousands of smaller funds use SPC Member services.

The fundamental aims of the SPC is to draw upon the knowledge and experience of SPC Members so as to contribute to legislation and other general developments offering pension and related benefit provision, and to provide SPC Members with services useful to their business.

It is also usual for experts on pensions on divorce to also be members of the SPC and to be either a pensions consultant or actuary.

The Society of Pension Consultants has Members that employ about 14,000 people providing pension related advice and services. SPC Members include accounting firms, solicitors, life offices, investment houses, investment performance measurers, pensions consultant and actuaries, independent trustees and external pension administrators.


Spouses lost rights
For a couple on divorce or nullity of marriage the partner is a pension scheme member, the former spouse will lose retirement benefits that he or she would have been entitled to had the marriage continued. For an occupational pension scheme such as a final salary pension the spouses lost rights will include a share of the members pension rights at retirement age, as a pension income and with the option of a commutation to a tax free lump sum.

If the spouse was preceded in death by the partner a widows pension would have been payable until the death of the spouse. Had the partner died before reaching the normal pension age, a death in service benefit would be payable by the scheme trustees to the dependants that almost certainly would be the spouse, as well as a widows pension.

The spouses lost rights should be reflected in the valuations method of the retirement benefits as documented in a pension audit undertaken by a pensions consultant with the relevant qualification such as G60 Pensions or equivalent.


Staggered vesting
Designed to give the member more control over income at retirement age, staggered vesting or phased retirement allows segments of the pension fund to be drawn when required. Segmentation will apply to a personal pension plan and this will consist of up to 1,000 identical but separate segments.

Each time the member draws a segment, a tax free lump sum of 25.0% can be taken and the balance must be used to purchase a pension annuity such as a conventional (standard) annuity or possibly a with profits annuity. The remaining fund value will remain invested with the life assurance company.

With staggered vesting the individual can use segments 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.