of premium benefit
In the event of a critical illness or accident of a personal
pension scheme member, waiver of premium benefit will allow
a regular contribution by the member or employer to continue
age. Payments from an income protection contact will not
qualify as taxable earnings.
Waiver of premium means the provider waives the regular contributions,
usually after a deferred period. Waiver of premium benefit will
not be available for policies started from 6 April 2001 with
the introduction of stakeholder pensions.
Reform and Pensions Act 1999
It is usual for a couple on divorce with retirement benefits
to use offsetting against other matrimonial assets as a resolution.
Attempts to allow the former spouse part of the members pension
rights were introduced in England and Wales by section 166 of
Act 1995 with earmarking and section 16 of the Family Law Act 1996 (FLA 96) with pension
Both these steps were unsatisfactory in achieving the desired
clean break so the Welfare Reform and Pensions Act 1999 (WRPA)
introduced the solution of pension sharing, receiving Royal
Assent on 11 November 1999 and applying to divorce and nullity of marriage from 1
December 2000. Part I of the WRPA made provision for stakeholder
pensions which came into force from 6 April 2001.
Part II deals with pensions and bankruptcy and is important
as section 11 of the WRPA provides statutory protection for
an approved scheme, whether being an occupational pension scheme, personal
pension or retirement annuity policies (RAPs) by excluding
a members pension rights from their estate on bankruptcy.
Part III contains the new pension
sharing framework that amends existing family law, specifically
section 19 amends the Matrimonial Causes Act 1973 (MCA 73) and
allows the court in England and Wales to make a pension
sharing order. Section 21 amends the MCA 73 section 25B
to 25D to allow a pension sharing order attachment of a specified
pension arrangement or state
scheme rights. Part IV deals with how pension sharing is
effected and the result in relation to the pension arrangement
and state earnings related pension scheme (SERPS).
The detailed working is left to subordinate legislation such
as how to create pension
debits as well as pension
credits and the calculation method used for the cash equivalent
transfer value (CETV).
Finally, the WRPA repealed section 16 of the FLA 96 that introduced
the concept of pension splitting.
There is a statutory duty called whistle blowing imposed on
the actuary or auditor appointed to an occupational pension scheme such
as a final
salary pension or money purchase scheme as set out in section
48 of the Pensions Act 1995.
This relates to the administration of the scheme by the managers
trustees, the employer, any professional adviser or any
prescribed person whereby a failure to comply with their duty
is likely to be of material significance to the functions of
Occupational Pension Regulatory Authority (OPRA).
If the appointed actuary or auditor have reasonable cause to
believe there is a material problem with the employers
pension scheme, they must immediately give a written report
There are no limits are specified in terms of reporting breaches
under the Pensions Act 1995 or the Pension Schemes Act 1993
however, the Department of Social Security (DSS) has stated
that whistle blowing will apply to those people with statutory
duties under the legislation. Although this duty does not extend
to solicitors, there will be a duty of solicitors under money
laundering regulations to report to the authorities activities
of laundering via the pension scheme.
v White (2000)
This is a landmark case ruled on by the House of Lords that
does not relate specifically to pensions but does consider that on divorce there should be equality between the money-earner (usually the
husband) and the non-financial contribution made to the welfare
of the family (usually the wife). The House of Lords expressed
an increased recognition that, by being at home and looking
after young children, a wife may lose for ever the opportunity
to acquire and develop her own money-earning qualifications
Lord Nicholls of Birkenhead said "before reaching a firm
conclusion and making an order along these lines, a Judge would
always be well advised to check his tentative views against
the yardstick of equality of division". He went on to say
"as a general guide, equality should be departed from only
if, and to the extent that, there is good reason for doing so".
For personal pensions the death of the scheme member prior to
retirement will mean the widow or widower will receive the pension
fund value as a tax free lump sum from which a compulsory
purchase annuity or pension
At retirement the member has the option to use an open market option to search for the highest pension annuity, adding all the features necessary such as spouse's income, as a proportion, usually either 100%, or 50% to provide an pension income for
a spouse in the event of death. 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.
It is also possible where the spouse requires the maximum possible
income to use the tax free lump sum to buy a purchase
life annuity. There are annuity
taxation advantages for doing this rather than taking the
pension fund as a pension income which is then subject to income
tax at 20% for the 2009/10 tax year for a basic rate taxpayer. The purchase life annuity
pays the income as capital
and interest where the capital (representing the majority of the income) is tax free and the interest
is subject to savings tax of 20%.
For an occupational
pension scheme the maximum the Inland Revenue will allow
for widows and widowers pension is 2/3rds of the members pension.
How much is actually offered will depend on the rules as set
out by the scheme trustees. Therefore the maximum will be 2/3rds
widows pension of 2/3rds members pension or 4/9ths of the members
pension income. The widows pension will retain other benefits
such as limited price indexation (LPI) where the income will
increase at the retail
price index (RPI) to protect the pension income from inflation
However, there may be certain payment conditions in the scheme
rules such as stopping or reducing a widows or widowers pension
on remarriage or paying a lower pension if she is considerably
younger than the late member. If there are young dependent children
then an extra amount could be payable until they are 18 or 21
if still in full-time education. In the event of the death of
the widow, the widows pension may continue to the children if
they are still dependent.
An employer of an occupational pension scheme such as a final
salary pension or occupational
money purchase scheme may decide on winding up, due to the
increasing administrative costs and obligations, rather than
consider a bulk transfer of the assets and liabilities to another
scheme such as stakeholder pensions.
On winding up there is a priority rule for schemes subject to
funding requirement (MFR) as stated in section 73 of the
Pensions Act 1995 where certain liabilities take priority such
as pensions in payment, members in deferred retirement, additional
voluntary contributions (AVC)
and guaranteed minimum pensions (GMP).
Unless stated in the scheme rules the scheme trustees have discretion
as to how to distribute a surplus after providing limited price indexation (LPI)
for all pensions.
Under the Social Security Act 1990 if the scheme is underfunded
the employer must meet this obligation on winding up. The scheme
will also have to meet the schemes liabilities and satisfy the equalisation
rules as required by the European Court of Justice (ECJ).
For a pension annuity on a joint
life annuity where the annuitants have selected both a guaranteed
period and a survivors pension, on the early death of the annuitant
only the income during the guaranteed period would be paid.
At the end of the guaranteed
period the survivors pension selected would then become
payable. However, if the annuity selected is with overlap, then
the survivors pension is paid immediately in addition to annuitants
pension until the end of the guaranteed period.
For example, a pension
annuity of £12,000 has a guaranteed period of 5 years
and a survivors pension of 50% with overlap. If the annuitant
dies 2 years later, the £12,000 will be paid for a further
3 years and a survivors
pension of £6,000 is paid immediately. The spouse
receives £18,000 for 3 years and when the guaranteed period
ends, only the £6,000 from the survivors pension is paid
until the end of the spouses life.
With the current market perception that pension
annuities does not represent as good value as it use to, and
with profit annuities have grown in popularity. By applying
annuity transfer option, a with profits annuity can usually
be converted to a conventional guaranteed annuity thereby avoiding
of delay if the annuity decided to defer taking an annuity.
It also does not have the higher associated investment risk
of a unit linked annuity or pension drawdown.
A with profits annuity can offer all the usual features as a
conventional annuity such as paid in advance or arrears, a guaranteed
period or survivors pension and also the possibility of
increased bonuses in the future. This compares to the fall in
annuity rates over recent years due to the falling long term
However, unlike standard annuity
rates, the income from a with profits annuity is dependent
on the underlying allocation of With
Profit assets in the fund so the income can go down as well
as up. However, some providers have introduced a guaranteed
minimum income below which the income from the annuity cannot
fall to add more security for the annuitant.
Although the annuitant can select the level of income based
on the anticipated future bonus rate of between 0% and 5% of
the pension fund, if the Anticipated
Bonus Rate (ABR) is higher than the bonuses actually declared
then the annuity income in the future will fall. Whether this
would happen would in part depend on the financial
strength of the provider and their ability to keep bonuses
above the ABR, even in poor market conditions.
Whether an individual at retirement buys a pension
annuity or a purchase
life annuity and takes the income in arrears, this can be
with or without proportion.
In the event of the annuitant's death during the period he or
she was waiting for the next annuity payment in arrears, an
annuity with proportion will pay to the estate a proportion
of the payment now due. For example, for an annuity that makes
the payment every quarter, if the death occurred halfway through
the quarter then half of the annuity would be paid to the estate.
At retirement the individual can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuities, adding all the features necessary such as proportion especially if payments are quarterly, half yearly or annually in arrears. 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.