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   Pension debit    Pension fund withdrawal    Pension drawdown
   Pension fund    Pension Law Review Committee    Pensionable earnings
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Pension debit
Once the court has designated the percentage of the cash equivalent transfer value (CETV) from the provider or a suitably adjusted CETV from a pensions expert in reference to the pension sharing order, a pension debit will be applied against the scheme members pension rights. The scheme trustees must record the pension debit and under section 31 of the Welfare Reform and Pensions Act 1999 (WRPA) revalue this as a negative deferred pension at the retirement date of the scheme member.


Pension drawdown
Provisions introduced in the Finance Act 1995 allowed members of personal pensions to opt for withdrawals from their pension fund, known as pension drawdown, rather than acquiring a compulsory purchase annuity or pension annuity with the pension remaining invested in an insurance company fund. This allows the member to have more control over their pension, but must still purchase an annuity at the age of 75.

Income drawdown is higher risk than a pension annuity and is referred to as an unsecured pension. There is no requirement to take an income, however the maximum income that can be drawn is 120% of a comparable annuity for a single person at a given age as determined by the Governments Actuaries Department (GAD) and results shown in the drawdown rates.

Significant advantages of income drawdown are the ability to take the tax free lump sum of 25% while leaving the pension fund invested and improved death benefits for a spouse or beneficiaries. An alternative route could be to use phased retirement where only part of their fund is used for a compulsory purchase annuity. Both pension drawdown and phased retirement will require a fairly large initial fund value in order to make it worthwhile, usually about £100,000 after tax free cash.

If a combination of drawdown and phased retirement is used the individual can use part 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.

If the annuitant wants to participate in equity returns in the future but with less risk to income, it is possible to do so through a with profits annuity. Here bonuses are declared and added to the annuity based on the performance of the With Profits fund and the volatility is smoothed out over time with the potential of increasing income in the future.


Pensions expert
This person could be a pensions consultant or actuary where information is required in relation to an occupation pension scheme or retirement projections.

Where an individual is retiring, they can seek advice from an annuity and pension bureau with IFAs that also have the qualification K10 (retirement options). This means that all aspects of retirement from a compulsory purchase annuity or pension annuity to pension drawdown and phased retirement can be considered by the advisers.

The adviser will be a competent designated individual with the additional qualification G60 Pensions that is recognised under permitted activity 13 of the FSA Handbook of Rules and Guidance. This will allow specialist pension transfer advice for a defined benefits occupational pension scheme, such as a final salary pension and would be relevant in divorce cases where an external transfer is required as a result of a pension sharing order.

Where the cash equivalent transfer value (CETV) is not sufficient to produce a fair value for the retirement benefits, the pensions consultant will be able to conduct a pension audit to determine a suitably adjusted CETV reflecting the circumstances and specific needs of the parties concerned. The parties should also have sufficient confidence that the pensions expert is knowledgeable in the area of pensions on divorce.


Pensionable earnings
In an occupational pension scheme such as final salary pension or a public service scheme it is often the case that only a members basic salary is considered for pensionable earnings, although this will be determined by the employers pension scheme definition of final remuneration. Other taxable income received such as bonuses, overtime, commissions and certain benefits in kind are pensionable with maximum tax relief on contributions of 15.0%.

The member will usually use up this allowance by investing through a company additional voluntary contribution (AVC) pension or a separate free-standing additional voluntary contribution (FSAVC), as final salary pension rules will not allow a member to correct a pension contribution shortfall, other than in circumstances where added years can be purchased, if available and depending on the members eligibility.


Pension fund
A pension fund represents a members pension rights accrued within a money purchase scheme such as a personal pension or stakeholder pension or an occupational money purchase scheme. The pension fund value will depend on the contributions made and investment return and at retirement the member can buy an annuity with 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.

An occupational final salary pension does not have an actual fund value. Only through actuarial calculation can a notional cash equivalent transfer value (CETV) be determined giving a fund value were the scheme member to leave at that date.

An unfunded public service scheme cannot show a member their fund value today because technically there is no fund as the benefits are guaranteed by statute. This scheme can only show a projection of retirement benefits at a members retirement age including a pension income and tax free lump sum. They would however, show a transfer value if the scheme member wished to make a pension transfer to another scheme.


Pension fund withdrawal
A pension fund withdrawal (PFW) is defined in the Financial Services Authority (FSA) Handbook of Rules and Guidance. This states that in relation to a decision of a customer, in respect of a personal pension, to defer the purchase of an annuity and to take either:

Income withdrawals within the meaning of section 630 of the Income and Corporation Taxes Act 1988 (ICTA) as amended by section 58 and schedule II of the Finance Act 1995, and any provisions amending or replacing it;
   
Payments made under interim arrangements in accordance with section 28A of the Pensions Schemes Act 1993 (PSA 93), as inserted by section 143 of the Pensions Act 1995, and any provisions amending or replacing it;
   
In respect of an election to make pension fund withdrawals, a reference in the rules to a consumer, an investor or a policyholder includes, after the persons death, his surviving spouse and/or anyone who is, at that time, his dependent.

The PFW is also known as pension drawdown and the income must be supported by the critical yield calculation.


Pension income
At the retirement age of the scheme member a pension income is one of the retirement benefits that can be taken from the fund value, in the form of a pension annuity or compulsory purchase annuity with the option to use an open market option to search for the highest 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 amount of pension income will be influenced by; the members age; the duration and contribution to all pensions; the annuity rates at that time; whether the future income is escalating to protect against inflation at say the retail price index such as using RPI escalation; and the expected good health or otherwise of the member.

Where an individual is suffering from a critical illness, they can enhance the pension income with an impaired life annuity if underwriting can expect a detrimental impact on life expectancy. The pension income is considered by the HM Revenue & Customs to be relevant earnings and they will be taxed accordingly.


Pensions Law Review Committee
Set up as a result of £600 million of funds going missing from pensions schemes within the business empire of the late Robert Maxwell in 1991, the Pensions Law Review Committee (PLRC) reviews all aspects of the legal protection of pension scheme assets.

In particular, the committee's 1993 report concluded that trust law was 'broadly satisfactory and should continue to provide the foundation for interests, rights and duties arising in relation to pension schemes'. The PLRC conclusions were accepted by the government along with other recommendations for extra strengthening and regulating methods where trust law was inadequate and incorporated in the Pensions Act 1995.


Pension linked term assurance
The rules applying to personal pensions or retirement annuity policies (RAPs) allow term assurance to be incorporated within the premiums paid into these schemes. There is a limit to the proportion allocated to purchasing term assurance, however members can claim tax relief at their highest rate on the premiums paid.
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Annuity Rates
Single
  55 £4,164  
  60 £4,625  
  65 £5,370  
  70 £5,980  
Joint
  55 £3,918  
  60 £4,367  
  65 £4,895  
  70 £5,348  
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