v T (1998)
In this case the couple were married for 14.5 years and at the
time of divorce they had no children. The wife had worked for 7 years, was entitled
to £175,000 to purchase her own house and 50% of £36,000
of join savings. She was also entitled to £22,000 per
annum in maintenance until her remarriage or death, reducing
to £17,000 after a year assuming she could earn £5,000
per annum herself.
The court held that the law did not require the court to make
compensation for loss of pension rights, despite the request
from the wife for an earmarking order on her husband's pension,
and compensation for potential lost widows pension. Only the
in service benefits were earmarked. The Judge considered
the valuation method used by providers being the cash equivalent
transfer value (CETV)
but questioned the possibility of finding an accurate value
and therefore whether the CETV
Method was worthwhile.
free lump sum
When a pension is drawn at retirement taking the cash commutation
option, a lump sum will be paid tax free.
Since A-Day, the Pension
Simplification rules introduced from 6 April 2006 allow
a tax free lump sum of 25% to be taken from all pension arrangements.
This includes an occupational pension scheme such as a defined
benefit final salary pension, money purchase scheme, Additional
Voluntary Contribution (AVC)
or FSAVC, retirement annuity policy (RAP) and contracted out
protected rights such as SERPS and S2P.
Previous to A-Day, a defined benefit final salary pension tax
free lump sum was dependant upon a formula based on the members
final remuneration and the number of years in employment.
For defined contribution schemes such as personal
pension stakeholder pensions or occupational money purchase
schemes the tax
free lump sum is currently 25.0% of the fund value at retirement
and the balance can be used 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.
From the age of 75, it is also possible to switch
to an Alternatively Secured Pension (ASP) rather than purchase
an annuity. With an ASP the individual can continue to withdraw an income without committing
their pension fund and on their death the proceeds of the fund
can be transferred to their beneficiaries.
For some individuals an income from the whole pension fund is
required. Based on annuity
taxation, rather than draw the income from the pension fund
and pay tax at 20% for the tax year 2010/11, the annuitant should take the tax free lump
sum and could use this to buy a purchase
life annuity. By doing this, say for a 65 year old, about 4/5ths of the
income is deemed by HM Revenue & Customs to be a return
of capital and therefore tax free and the other 1/5th
is interest and taxed at the savings rate of 20%. This can
noticeably increase the income to the annuitant and is payable
for the rest of their life.
An occupational pension scheme such as a final salary pension
will usually allow an employee to continue as an active scheme
member even though he or she is not actively at work due to
an illness or taking a sabbatical. The maximum period for such
temporary absence is 30 months. During this period retirement
benefits continue to accrue and the employee remains covered
for death in service benefits.
This type of annuity is available for a lump sum payment only
such as to a purchased
life annuity, not a pension
annuity, and the benefits payable for the fixed period chosen
or until the death of the annuitant, whichever is the sooner.
Therefore a temporary annuity is paid for a fixed period of
time, say 10 or 15 years, and once this time has elapsed or
the annuitant dies, the annuity payments stop. Temporary annuities
have a shorter period of payment than lifetime annuities and
the income paid for given lump sum is greater.
An endowment policyholder that wants to realise the cash value
of the policy can achieve this by surrendering, or selling the
policy on the traded endowment policy (TEP) market.
The advantage of the TEP market is that for any with-profits
policy, a buyer will usually pay a higher value for the policy
than the value received on surrender from the provider. Therefore
the parties should seek advice from an independent
financial adviser (IFA) before encashing the endowment policy.
The advantage to the buyer of a with-profits policy is that
the eventual yield on maturity can be much higher than that
produced from an interest bearing security, although the buyer
will have to be prepared to pay the premiums to maturity. There
may also be a windfall for the buyer if the original owner,
that will still be the life assured, dies before the policy
matures as this money is payable to the buyer.
The acquisition will mean it is no longer a qualifying
policy and the buyer will be subject to capital gains tax
(CGT) and income tax on the maturity of the policy.
Since A-Day and Pension Simplification rules from 6 April 2006,
where an individual is taking income
drawdown it is possible to purchase a term certain annuity
for up to 5 years. The income from the term certain annuity
counts towards the maximum income withdrawal allowable under
income drawdown up to the age of 75. All term certain annuities
must end by age 75.
Tax-exempt special savings accounts (TESSA) were launched in
January 1991 as five year savings accounts allowing the investor
to receive the interest gross without the deduction of tax as
long as no capital and not more than 75% of the interest is
withdrawn by the end of the five year term. TESSAs were replaced
by the Individual Savings Account (ISA)
from the 6 April 1999.
It is no longer possible to start a TESSA, however those accounts
that existed at 5 April 1999 were allowed to continue to maturity.
Unlike ordinary bank or building
society accounts, TESSAs require the individual to lock
in the deposit monies for a period of five years in order to
receive the tax benefits.
When a TESSA matures the investor is allowed, with 6 months,
to transfer the capital of up to £9,000 to a TESSA-only
ISA. This is in addition to the normal annual limits applied
to ISAs and any interest in the TESSA could be used to invest
in these limits.
In the context of the Financial Services Act 1986, a person
or firm that advises on and is only authorised to sell the products
of a single life assurance company is called a tied agent. Under
the Financial Services Act 1986 now the Financial Services and
Markets Act 2000 (FSMA)
such advisers must indicate to a prospect that they are tied
and can only sell the products from one company. A tied agent
is different from a person that is employed by an insurance
company and is usually known as a broker.