G60 Pensions
The qualification of the advanced financial planning certificate (AFPC) for G60 Pensions demonstrates a pensions consultant has a comprehensive knowledge of pension issues. It will also classify an intermediary such as an independent financial adviser (IFA) as a pension transfer specialist.

This relates to transfer advice for deferred benefits from a defined benefits occupational pension scheme, such as final salary pension, to another pension arrangement. Pension transfer advice is recognised by the Financial Services Authority (FSA), formally the Personal Investment Authority (PIA), under permitted activity 13 of the Financial Services Authority Handbook of Rules and Guidance.


General prohibition
The prohibition that is contained in Section 19 of the Financial Services and Markets Act 2000 (FSMA), states that no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an exempt person or an authorised person.


Government Actuary's Department
In 1919 the Treasury created the Government Actuary's Department (GAD) to satisfy the demand from government departments for actuarial advice on financial matters. The importance of GAD increased significantly after World War II with the states expansion of its role in pensions, social security and healthcare.

Today GAD remains a government department but also functions as an actuarial consulting firm operating on commercial lines, generating fee income for services to the public and private sectors and almost covering all of its costs. The Government Actuary's Department has a number of core activities involving official population projection for the United Kingdom, employers pension scheme surveys and statistics on life expectancy.

A large part of GAD is concerned with pensions and includes advice given to the Treasury, Inland Revenue and the Occupational Pensions Regulatory Authority (OPRA). Also, GAD advises on private pensions and regulation in the UK related to technical, strategic and policy issues.


Gross and net contributions
The contributions of a scheme member to approved pensions will benefit from tax rebates resulting in a distinction between the gross contribution and the net contribution. For a private pension scheme such as a personal pension or stakeholder pensions, the net contributions paid by the member will be increased by the pension provider to gross contributions invested with a tax rebate at the basic rate of tax, currently 20.0% for the 2008/09 tax year.

Although this satisfies the basic rate taxpayer, the higher rate taxpayer, currently 40.0%, will receive the 20.0% difference between basic and higher rate tax at the end of the tax year through their self assessment. This will then effectively reduce their original net contributions made for that tax year. For an employers pension scheme such as a final salary pension or money purchase scheme, an individual will have the gross contribution deducted from their gross relevant earnings and this in turn will reduce the tax on the earnings remaining that will be equal to any tax relief on pension contributions made.

Therefore both basic and higher rate taxpayers will benefit from tax relief at their highest marginal rate as the contributions are made, with no need for any adjustment to tax through self assessment at the end of the tax year.


Group personal pension
Unlike an occupational pension scheme such as a final salary pension or small self administered scheme (SSAS), a group personal pension (GPP) is effectively a series of individual personal pensions provided by a single life insurance company. A GPP will cost a scheme member more to operate than a final salary pension and this cost will be met out of the contributions made.

However, under the Pensions Act 1995 the regulation requirements of the employer by operating a GPP are much less onerous and with lower administration costs than a final salary pension scheme. Both the employer and the employee can contribute to a group personal pension and these contributions will be limited to the HM Revenue & Customs annual allowance, currently £245,000 for the 2009/10 tax year. The employee will pay the contributions net of basic rate tax, after pay as you earn (PAYE) tax has been deducted. Any employer contribution will be made gross to the members personal pension.

The employee will decide on contracting out of the state earnings related pension scheme (SERPS) but if they do, the national insurance (NI) contributions will be the same as the contracted in rates. Unlike a final salary pension a GPP is a defined contribution scheme with no maximum on the retirement benefits, paid as a pension income and/or partial commutation to a tax free lump sum, provided at retirement age.


Guaranteed minimum pension
Where a final salary pension scheme has contracted out of the state scheme the guaranteed minimum pension (GMP) relates to the earnings component of the state basic pension that the member would have earned while in the employer's scheme, had the member not contracted-out. GMPs ceased to accrue after 5 April 1997.


Guaranteed period
At retirement an individual with a pension fund or a lump sum can buy either a pension annuity or purchase life annuity. The annuitant can decide that the annuity income is to be paid for a guaranteed period of time from the start, typically for 5 or 10 years and this applies to a With Profits annuity as well. This means that if the annuitant dies shortly after taking the annuity, the income must continue be paid for the time of the guaranteed period remaining.

The annuity can be paid as an income, usually to the estate, or the insurance company may be willing to capitalise the amount of the annuity remaining and pay this as a lump sum. This lump sum is typically less than the value that would have been paid as an income to reflect the investment loss to the insurance company of paying the money sooner.

Alternatives to a guaranteed period for pension annuities would be a survivors pension that would be payable for the whole of the spouse's life, or for a purchase life annuity a dependents benefit. The purchase life annuity could use capital protection instead where the remaining value between the purchase price and payments made would be paid to the estate on the death of the annuitant. At retirement the individual using the fund to buy a pension annuity has the option to consider an open market option to search for the highest annuity rates. 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.


Headroom check
Prior to A-Day, a scheme member of a free standing additional contribution (FSAVC) with contributions of more than £2,400 gross per annum would have required a headroom check. A headroom check performed by the FSAVC scheme administrator would ensure the members contributions did not exceed Inland Revenue maximums set at 15.0% of pensionable earnings for an occupational pension scheme at that time.

Under the Occupational Pension Schemes (Disclosure of Information) Regulations 1996 as amended by section 1 1997 number 786, a scheme member is entitled to obtain details of the main scheme benefits. Where the earnings cap was applied to the main scheme benefits, it would also apply to the FSAVC headroom check calculations.


H v H (1993)
The couple married in 1978 and divorced in 1990. At the time of the divorce they had three children. The husband was a doctor and the wife was a teacher and nurse. The couple had joint matrimonial assets of £158,000, the wife had further assets of £162,000 and the husband had further assets of £242,000. The District Judge ordered that the husband pay maintenance to the children of £2,280 each per annum and maintenance to the wife of £5,700 per annum as well as capital of £180,000.

In this case the District Judge took into account the husband's future family inheritance and the NHS pension rights. The husband appealed and this was allowed. On appeal the Judge said that it was wrong to consider the inheritance and NHS pension rights and should only consider the duration of the marriage, not the pensions post-divorce value of retirement benefits.


Hybrid scheme
An employers pension scheme that combines both a final salary and occupational money purchase scheme is called a hybrid scheme. A hybrid scheme will provide a mix of benefits and evaluates the members pension fund on both a money purchase and final salary pension basis.

At retirement age or on leaving service early, the member will receive a fund or income from whichever provides the greater value. This offers the security of a link to earnings closer to or at retirement and the member is less likely to lose benefits if leaving the scheme early. If the member received a pension fund, at retirement they would be able to purchase an annuity and consider an open market option to search for the highest annuity rates. 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.