Audit
Report gives you the evidence
to claim more of your own assets on divorce. A higher pension value
can be used in offsetting resulting in more money for you today.
Your spouse's
pension could be worth more!
Find out now if your spouse's pension arrangement is more valuable
than you are being told, by using our free audit
rating table
Safeguarded
rights
As the result of divorce or nullity
of marriage and the making of a pension sharing order, the government
wish to ensure that the safeguarded rights as part of the pension
credit are securely protected and applied for their intended
purpose of providing an income at retirement. This has been
achieved by section 36 of the Welfare Reform and Pensions Act
1999 (WRPA)
inserted a new part III of the Pension Schemes Act 1993 (PSA
93). This is further outlined in subordinate legislation
through the Pension Sharing (Safeguarded Rights) Regulations
2000.
The spouses pension rights derived from the pension scheme member
of a contracted out occupational
pension scheme or appropriate personal pension (APP) must
be transferred to the former spouse as safeguarded rights and
distinguished from the contracted out rights of the scheme member.
Safeguarded rights will have been financed by National Insurance
(NI) contributions and will be subject to the same conditions
that apply to post-1997 earnings related contracted out or protected
rights.
Schemes will not have to offer survivors'
pension rights from safeguarded rights and will not be tracked
or monitored by the contracted out employments group (COEG).
This means that the scheme trustees must keep a record of the
former spouses rights as well as details of the pension
sharing order and record the percentage of the share against
the members pension.
Salary
sacrifice
A scheme member can agree a salary sacrifice with the employer
whereby a reduced salary is exchanged for extra pension contributions
paid to an occupational pension scheme, such as a final salary
pension or money purchase scheme, by the employer. This will
save the employer National
Insurance (NI) contributions on the salary sacrificed.
The advantage to the scheme member is that the extra contributions
would benefit from a commutation
to a tax free lump sum at retirement age whereas an additional
voluntary contribution (AVC)
scheme would only pay a pension income. The occupational pension
scheme will also benefit from inflation proofing by limited
price indexation (LPI)
of the pension income at the retail
price index (RPI) up to 5.0% per annum whereas this will
not be the case with an AVC.
However, a salary sacrifice will reduce the members definition
of pensionable earnings for maximum retirement benefits, death
in service benefits, widows
pension and state benefits.
Savings
It is common for a couple on judicial separation, divorce
and nullity of marriage to have a cash balance for emergencies
in a bank or building society account. These amounts form part
of the matrimonial
assets and need to be identified as part of the overall
assets to be divided by the parties, including both individual
and joint accounts.
It is important to ensure that on divorce any bank or building
society account held in joint names should be closed and replaced
with single name accounts in order to avoid any future problems
relating to signatures for withdrawals. The parties may also
have National
Savings and Investment bonds and certificates. In general
these can be transferred to the other spouse without tax consequences.
If the parties invest in a Tax exempt special savings accounts
(TESSA), a financial
order from the court as a result of divorce may require
the transfer of part of a TESSA.
Where this is within the five year term an early withdrawal
of capital will mean that all the interest earned to that date
will become taxable. The provider may also impose a penality
for early surrender.
Scheme
member
An individual that has qualified under the scheme rules for
benefits within an occupational pension scheme, such as a final
salary pension or a money
purchase scheme, such as a personal pension or stakeholder
pensions is known as a scheme member. Since the government introduced
stakeholder
pensions on 6 April 2001 an individual can become, and remain
a scheme member with as little as £20 invested in a pension
fund.
For a final
salary pension, eligibility for scheme membership may be
deferred by a waiting period initially. Membership for two years
or less may result in the return of personal contributions to
the scheme member. For membership of two years or more the individual
can remain a scheme member until retirement
age or until a pension
transfer is made, if sooner.
Scheme
trustees
This can be an individual, a number of people or independent
institution that are responsible for the management of a trust
in accordance with the Trust Deed. Scheme trustees have the
power to select any investment they wish in order to adhere
to the Trust Deed.
The activities of scheme trustees come under the jurisdiction
of the Occupational Pensions Regulatory Authority (OPRA)
that has extensive powers as set out in Part I of the Pensions
Act 1995. These include:
•
The power to
remove or suspend a trustee from acting:
•
To appoint a
new trustee to replace a removed or disqualified trustee;
•
Winding
up pension schemes in certain circumstances;
•
To modify pension
schemes for certain purposes;
•
To impose civil
penalties;
•
To apply to
the court for an order to prevent the misuse or misappropriation
of pension scheme assets;
•
To direct the
trustees to make payments of benefits;
•
Apply to the
court for an order requiring the restitution of pension
scheme assets.
Section
226 policies
This section originates from the Income and Corporation Taxes
Act 1970. Section 226 policies will allow an individual to purchase
his or her own pension and includes a lump sum death benefit.
From 1 July 1988 a Section 226 contract was replaced by personal
pensions. A Section 226 offers cash commutation of up to
33.0%, which is higher than a personal pension giving 25.0%.
Therefore individuals should usually retain an existing Section
226 for their retirement.
Section
32 buyout
Paid-up pension rights and entitlements from a previous employment
can be transferred into section 32 buyout. The benefits from
section 32 buyout policies will not be available until retirement.
By transferring to a life assurance company offering more beneficial
rates, the member could improve on the existing benefits.
Securities
and Investment Board
Created by the Financial Services Act 1986, the Securities and
Investment Board (SIB) was responsible for the activities of
the self regulating organisations (SRO)
and regulatory policy in general. In October 1997 all the functions
of SIB were transferred to the Financial
Services Authority (FSA).
Segmentation
For a private pension scheme such as a personal pension or if
prior to 1 July 1988, retirement annuity policies (RAPs)
it is usually the practice to issue up to 1,000 separate but
identical pension
arrangements within the same policy and this is called segmentation.
This segmentation is used in phased
retirement and the advantages of this is that it:
•
Allows the individual
to retire gradually as relevant earnings from their work
reduce;
•
Will allow the
fund to continue to grow in a tax free regime;
•
Allows the annuity
rate to improve as the member becomes older;
•
Allows the individual
to retain any lump
sun death benefit that would be paid free of income
tax and inheritance tax (IHT).
Disclaimer:
Information found on this site does not amount to financial advice or
legal advice. Every time you access the website you agree to be bound
by the Terms and Conditions.
If you do not agree to be bound by them, you should not use the sharingpensions.co.uk
website. Before taking any action regarding pensions, pension on divorce
or any other financial or legal matter you should seek professional
advice.
