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   P11D benefits    Past service reserve    Pension audit
   Pensions    Pay as you earn    Pension credit
   Pensions Act 1995    Pension arrangements    

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P11D benefits
On the 6 July following the end of each tax year, the employer must provide the form P11D to the employees showing the taxable cash equivalent of all benefits in kind. A P11D reflects the value of benefits for the tax year already ended. So by this time there is no longer an opportunity for the employee to make contributions to additional voluntary contributions (AVC) to absorb the value of taxable benefits in kind that are pensionable earnings.


Past service reserve
This is a method of calculating the value of member's benefits in a scheme. It takes account of the reserves within a final salary pension to cover future salary increases as a result of inflation and career progression.


Pay as you earn
For employees and directors with income tax due under schedule E in respect to emoluments including all salaries, fees, wages and profits, the payment of tax will be made under the pay as you earn (PAYE) system. The employer is responsible for:

Deducting the correct tax and National Insurance (NI) before paying the earnings net to the employee or director keep a record of pay and deductions;
   
Paying the tax and NI to the collector of taxes every month;
   
Sending the Inland Revenue a year end return for deductions and payments.

By using the Inland Revenue PAYE codes and tax tables the employer must make the appropriate deductions, issue the employee a pay slip and pay all money owed for PAYE and NI by the 19th of each month to the Inland Revenue. Each year on the 19 May the employer must provide the Inspector of Taxes form P14 for each employee showing the returns for the year as well as form P35 and on the 6 July each year form P9D and P11D benefits that detail the employee expenses and benefits.


Pensions
These are schemes that will pay an income to an individual at retirement age as an annuity and are taxed as earned income. Employees, Directors (Schedule E) and the employer can fund occupational pension schemes or an individual may fund their own personal pension. For a defined benefit occupational pension scheme, the Pension Schemes Office (PSO) sets limits to the amount of benefit that can be taken in terms of an income and tax free lump sum, being based on the net relevant earnings in the year prior to retirement.

For individual employees or the self-employed making contributions to a defined contribution scheme such as a money purchase or personal pension, there are limits set by HM Revenue & Customs as to the level of contribution based on the Annual Allowance of £235,000 for the 2008/09 tax year. The contributions to an exempt approved pension scheme will qualify for tax relief but an unapproved scheme will not. Rules allow an individual a contribution of either £3,600 per annum or 100% of their earnings in order to benefit from tax relief at their marginal rate of tax.

At retirement the individual can use a pension fund 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.


Pensions Act 1995
In practice, the members pension rights for divorce cases prior to the Pensions Act 1995 could not be divided so the former spouse would be left with no retirement benefits. Instead offsetting would be used against other matrimonial property, such as the family home and the pension scheme member would be directed to pay to their spouse a greater share of the matrimonial property.

The courts generally had no power to order payments to the former spouse from retirement benefits. Section 166 of the Pensions Act 1995 inserted sections 25B to 25D in the Matrimonial Causes Act 1973 (MCA 73) that gave the courts the power of pension earmarking, which has applied to all divorces petitioned since 1 July 1996 where couples in divorce were unable to reach an out-of-court settlement. The Pensions Act 1995 permits earmarking of the tax free lump sum at retirement, death in service benefit, death benefits post retirement and pensions in payment.

However, there is no provision for earmarking of the spouses pension rights as this potentially could be paid to someone else on the death of the pension scheme member. The Pensions Act 1995 provides a statutory method for calculating a value of the retirement benefits in today's terms in the form of a cash equivalent transfer value (CETV). This was contrary to the preferred method of family solicitors in Scotland of using the past service reserve.


Pension arrangements
Since 6 April 2006 Pension Simplification has replaced eight tax regimes and introduced two new controls. Firstly there is a Lifetime Allowance where the maximum amount of pension savings that can benefit from tax relief and has been initially set at £1.5 million for the 2006/07 tax year increasing to £1.8 million for the 2010/11 tax year.

The other control is the Annual Allowance that limits the amount that can be contributed to a pension to £215,000 for the 2006/07 tax year rising to £255,000 by 2010/11 tax year. However, the rules allow an individual to contribute either £3,600 per annum or 100% of their earnings in order to benefit from tax relief at their marginal rate of tax.

The pension market in the UK is still complex and provides for individuals, groups, personal and occupational schemes. This includes pension arrangements that are active for existing members but closed to new business due to costs or have been superceded by a new pension regime. Other arrangements allow the occupational scheme member to make extra payments to enhance retirement benefits. This can be achieved by using free standing additional voluntary contribution (FSAVC) schemes or additional voluntary contribution (AVC).

Public service schemes also allow members to enhance benefits by purchasing added years. Other more specialised arrangements include executive pension plans (EPP) and small self administered schemes (SSAS) or self invested personal pensions (SIPPs) that offer more flexible investment choice than an insured personal pension.

At retirement the individual will receive a pension income from a defined benefit scheme or if a money purchase scheme such as a personal pension can use a pension fund 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.


Pension audit
This is the process to determine the value of a members pension benefits. This involves the accurate collection of relevant data from the members scheme; the application of appropriate mathematical assumptions to determine a fair value for all benefits with reference to offsetting, earmarking and pension sharing and the presentation of these findings in a compliant format showing a knowledge of the client and best advice given.

The pension audit will use the cash equivalent transfer value (CETV) from the scheme administrator as the basis of the calculation in order to produce an adjusted CETV reflecting the circumstances and specific needs of the parties.

The pension audit should be conduced by a pensions consultant that is a pensions expert with a recognised qualification such as G60 Pensions or equivalent. The parties should also have sufficient confidence that the pensions expert is knowledgeable in the area of pensions on divorce.


Pension credit
For pension sharing on divorce, the court must determine the percentage to be applied to a cash equivalent transfer value (CETV) from the provider or a suitably adjusted CETV from a pensions expert, in order to create a pension credit to the pension scheme member's former spouse. In a funded occupational pension scheme the former spouse may be made a scheme member if dual membership is allowed.

This scheme will be subject to minimum funding requirements (MFR) and if the scheme is found to be in deficit, a pension credit may be reduced by the percentage the scheme is under funded by at the valuation date. This reduction will be applied if the pension credit is paid as an external transfer. However, if the former spouse is allowed dual membership to the scheme and opts for an internal transfer, the pension credit is unlikely to be reduced.

In the case of an unfunded public service scheme an external transfer is not permissible, therefore the former spouse must apply the pension credit to an internal transfer. An unfunded scheme does not need to comply with the MFR as benefits are guaranteed by statute and therefore a deficit to the scheme member can never occur.

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  55 £4,748  
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  60 £4,983  
  65 £5,429  
  70 £6,094  
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