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Contracted in money purchase scheme
A contracted in money purchase scheme (CIMPS) is a defined contribution approved occupational pension scheme where the Inland Revenue personal contributions limit is 15.0% of the scheme members relevant earnings.

The maximum pension income at retirement age is 2/3rds of final pensionable earnings and the maximum commutation to a tax free lump sum is two-and-a-quarter times the pension income at retirement age or 3/80ths for each year of service times final remuneration up to a maximum of one-and-a-half times final remuneration.

It is possible that a scheme member of a CIMPS that makes contributions significantly below the Inland Revenue maximums will be able at retirement age to commute the whole of the pension fund value to a tax free lump sum. A CIMPS scheme must be audited each year to comply with the Occupational Pensions Regulatory Authority (OPRA) regulations and there must be an employers contribution to the scheme, although not an employee contribution.


Contracted out money purchase
If an employee contracts out of the State Earnings Related Pension Scheme (SERPS) the employer will be able to fund a contracted out money purchase scheme (COMPS) with the National Insurance (NI) rebates. COMPS will provide a pension to the member that is based on the performance of the underlying investments.


Contracting out
Instead of paying into the State Earnings Related Pension Scheme (SERPS) employees can join a contracted out occupational pension scheme (if the employer operates one) or take out an appropriate personal pension. A contracted out occupational pension scheme will provide a pension income at retirement related to earnings if operated as a final salary pension, or a pension income related to the member's fund value if operated as a contracted out money purchase scheme (COMPS).

The member and employer will pay lower National Insurance (NI) contributions than if they had not contracted out. An appropriate personal pension will provide a pension income at retirement linked to the member's fund value, this being the sum of the contributions made and investment return. An employee contracting out by way of an appropriate personal pension will pay NI contributions in full. SERPS provides no opportunity to the scheme member for commutation to a tax free lump sum at retirement age.


Contributions
A pension scheme member will be expected to make contributions to qualify for retirement benefits within an employers pension scheme, if it is a contributory scheme. This will usually be stated as a percentage of the scheme members pensionable earnings and the Inland Revenue limit personal contributions to 15.0% irrespective of age.

Occasionally it may be a non contributory scheme where the members retirement benefits can be accumulated without making any personal payments. Retirement benefits from a private pension scheme such as a personal pension or stakeholder pensions will be dependent on the members personal contributions made up to their chosen retirement age. Contributions made to stakeholder pensions will be limited to £3,600 per annum irrespective of earnings.

The contributions to a personal pension or self invested personal pensions (SIPPs) will be dependent on the members net relevant earnings (NRE), limited by Inland Revenue maximums based on the members age and ranging from 17.5% for individuals aged 35 or less up to 40.0% for individuals aged 61 or above, being scaled between these limits. The maximums imposed by the Inland Revenue are in part due to the tax rebates given for contributions made to exempt approved schemes, resulting in gross and net contributions.

For a basic rate taxpayer there will be a tax rebate of currently 22.0% on contributions made. For a higher rate taxpayer a tax rebate of currently 40.0% is given although for a personal pension part of this must be claimed through their self assessment.


Contributory scheme
Any pension scheme, whether an employers pension scheme or private pension scheme, where the member is required to contribute is known as a contributory scheme.

For an employers pension scheme, such as a final salary scheme the employer will make a contribution to the scheme if required by the scheme trustees to comply with the minimum funding requirement (MFR). The employer may be required not to make a contribution to the scheme if it is in surplus but this will not affect the members pension rights at retirement age.

In extreme circumstances even the members may not be required to make payments until the scheme is in balance, creating a non contributory scheme for a period of time. A private pension scheme will always be contributory as the onus is on the member to make payments if he or she wishes to accrue a sufficient fund value to deliver their desired retirement benefits.


Court order
In a marriage where one of the partners has applied successfully for a decree of judicial separation, decree of nullity or a decree nisi in divorce proceedings, they can apply for a court order to settle any disputes over children, matrimonial assets or financial matters.

In terms of court orders against the members pension rights from the pension arrangements of a partner, an earmarking order can be applied in nullity, judicial separation or divorce. A pension sharing order can only be applied in divorce and nullity and only after the court has granted a decree nisi. However, if a pension sharing order has been granted prior to the decree absolute it can be subject to a variation of settlement order that will prevent the order from taking place.


Critical yield
The critical yield is used to determine investment returns needed to provide pension income in relation to executive pension plans (EPP), final salary pensions, small self administered schemes (SSAS), pension fund withdrawal (PFW) and transfer value analysis system (TVAS).

For example, with reference to PFW the Financial Services Authority (FSA), formally the Personal Investment Authority (PIA) has identified two bases for the calculation of a critical yield as;