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   T v T (1998)    Temporary absence    Term certain annuities
   Tax free lump sum    Temporary annuity    TESSA
   TEP market    Tied agent    

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T 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 husband's death 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.

Tax 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.

Temporary absence
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.

Temporary annuity

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.

TEP market
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.

Term certain annuities
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.

Tied agent
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.

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