Waiver of premium benefit
In the event of a critical illness or accident of a personal pension scheme member, waiver of premium benefit will allow a regular contribution by the member or employer to continue to retirement age. Payments from an income protection contact will not qualify as taxable earnings.

Waiver of premium means the provider waives the regular contributions, usually after a deferred period. Waiver of premium benefit will not be available for policies started from 6 April 2001 with the introduction of stakeholder pensions.


Welfare Reform and Pensions Act 1999
It is usual for a couple on divorce with retirement benefits to use offsetting against other matrimonial assets as a resolution. Attempts to allow the former spouse part of the members pension rights were introduced in England and Wales by section 166 of the Pensions Act 1995 with earmarking and section 16 of the Family Law Act 1996 (FLA 96) with pension splitting.

Both these steps were unsatisfactory in achieving the desired clean break so the Welfare Reform and Pensions Act 1999 (WRPA) introduced the solution of pension sharing, receiving Royal Assent on 11 November 1999 and applying to divorce and nullity of marriage from 1 December 2000. Part I of the WRPA made provision for stakeholder pensions which came into force from 6 April 2001.

Part II deals with pensions and bankruptcy and is important as section 11 of the WRPA provides statutory protection for an approved scheme, whether being an occupational pension scheme, personal pension or retirement annuity policies (RAPs) by excluding a members pension rights from their estate on bankruptcy.

Part III contains the new pension sharing framework that amends existing family law, specifically section 19 amends the Matrimonial Causes Act 1973 (MCA 73) and allows the court in England and Wales to make a pension sharing order. Section 21 amends the MCA 73 section 25B to 25D to allow a pension sharing order attachment of a specified pension arrangement or state scheme rights. Part IV deals with how pension sharing is effected and the result in relation to the pension arrangement and state earnings related pension scheme (SERPS).

The detailed working is left to subordinate legislation such as how to create pension debits as well as pension credits and the calculation method used for the cash equivalent transfer value (CETV). Finally, the WRPA repealed section 16 of the FLA 96 that introduced the concept of pension splitting.


Whistle blowing
There is a statutory duty called whistle blowing imposed on the actuary or auditor appointed to an occupational pension scheme such as a final salary pension or money purchase scheme as set out in section 48 of the Pensions Act 1995.

This relates to the administration of the scheme by the managers or scheme trustees, the employer, any professional adviser or any prescribed person whereby a failure to comply with their duty is likely to be of material significance to the functions of Occupational Pension Regulatory Authority (OPRA). If the appointed actuary or auditor have reasonable cause to believe there is a material problem with the employers pension scheme, they must immediately give a written report to OPRA.

There are no limits are specified in terms of reporting breaches under the Pensions Act 1995 or the Pension Schemes Act 1993 (PSA 93) however, the Department of Social Security (DSS) has stated that whistle blowing will apply to those people with statutory duties under the legislation. Although this duty does not extend to solicitors, there will be a duty of solicitors under money laundering regulations to report to the authorities activities of laundering via the pension scheme.


White v White (2000)
This is a landmark case ruled on by the House of Lords that does not relate specifically to pensions but does consider that on divorce there should be equality between the money-earner (usually the husband) and the non-financial contribution made to the welfare of the family (usually the wife). The House of Lords expressed an increased recognition that, by being at home and looking after young children, a wife may lose for ever the opportunity to acquire and develop her own money-earning qualifications and skills.

Lord Nicholls of Birkenhead said "before reaching a firm conclusion and making an order along these lines, a Judge would always be well advised to check his tentative views against the yardstick of equality of division". He went on to say "as a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so".


Widows pension
For personal pensions the death of the scheme member prior to retirement will mean the widow or widower will receive the pension fund value as a tax free lump sum from which a compulsory purchase annuity or pension annuity.

At retirement the member has the option to use an open market option to search for the highest pension annuity, adding all the features necessary such as spouse's income, as a proportion, usually either 100%, or 50% to provide an pension income for a spouse in the event of death. 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.

It is also possible where the spouse requires the maximum possible income to use the tax free lump sum to buy a purchase life annuity. There are annuity taxation advantages for doing this rather than taking the pension fund as a pension income which is then subject to income tax at 20% for the 2009/10 tax year for a basic rate taxpayer. The purchase life annuity pays the income as capital and interest where the capital (representing the majority of the income) is tax free and the interest is subject to savings tax of 20%.

For an occupational pension scheme the maximum the Inland Revenue will allow for widows and widowers pension is 2/3rds of the members pension. How much is actually offered will depend on the rules as set out by the scheme trustees. Therefore the maximum will be 2/3rds widows pension of 2/3rds members pension or 4/9ths of the members pension income. The widows pension will retain other benefits such as limited price indexation (LPI) where the income will increase at the retail price index (RPI) to protect the pension income from inflation until death.

However, there may be certain payment conditions in the scheme rules such as stopping or reducing a widows or widowers pension on remarriage or paying a lower pension if she is considerably younger than the late member. If there are young dependent children then an extra amount could be payable until they are 18 or 21 if still in full-time education. In the event of the death of the widow, the widows pension may continue to the children if they are still dependent.


Winding up
An employer of an occupational pension scheme such as a final salary pension or occupational money purchase scheme may decide on winding up, due to the increasing administrative costs and obligations, rather than consider a bulk transfer of the assets and liabilities to another scheme such as stakeholder pensions.

On winding up there is a priority rule for schemes subject to the minimum funding requirement (MFR) as stated in section 73 of the Pensions Act 1995 where certain liabilities take priority such as pensions in payment, members in deferred retirement, additional voluntary contributions (AVC) and guaranteed minimum pensions (GMP). Unless stated in the scheme rules the scheme trustees have discretion as to how to distribute a surplus after providing limited price indexation (LPI) for all pensions.

Under the Social Security Act 1990 if the scheme is underfunded the employer must meet this obligation on winding up. The scheme will also have to meet the schemes liabilities and satisfy the equalisation rules as required by the European Court of Justice (ECJ).


With overlap
For a pension annuity on a joint life annuity where the annuitants have selected both a guaranteed period and a survivors pension, on the early death of the annuitant only the income during the guaranteed period would be paid.

At the end of the guaranteed period the survivors pension selected would then become payable. However, if the annuity selected is with overlap, then the survivors pension is paid immediately in addition to annuitants pension until the end of the guaranteed period.

For example, a pension annuity of £12,000 has a guaranteed period of 5 years and a survivors pension of 50% with overlap. If the annuitant dies 2 years later, the £12,000 will be paid for a further 3 years and a survivors pension of £6,000 is paid immediately. The spouse receives £18,000 for 3 years and when the guaranteed period ends, only the £6,000 from the survivors pension is paid until the end of the spouses life.


With Profits annuity
With the current market perception that pension annuities does not represent as good value as it use to, and with profit annuities have grown in popularity. By applying the future annuity transfer option, a with profits annuity can usually be converted to a conventional guaranteed annuity thereby avoiding the cost of delay if the annuity decided to defer taking an annuity. It also does not have the higher associated investment risk of a unit linked annuity or pension drawdown.

A with profits annuity can offer all the usual features as a conventional annuity such as paid in advance or arrears, a guaranteed period or survivors pension and also the possibility of increased bonuses in the future. This compares to the fall in annuity rates over recent years due to the falling long term interest rates.

However, unlike standard annuity rates, the income from a with profits annuity is dependent on the underlying allocation of With Profit assets in the fund so the income can go down as well as up. However, some providers have introduced a guaranteed minimum income below which the income from the annuity cannot fall to add more security for the annuitant.

Although the annuitant can select the level of income based on the anticipated future bonus rate of between 0% and 5% of the pension fund, if the Anticipated Bonus Rate (ABR) is higher than the bonuses actually declared then the annuity income in the future will fall. Whether this would happen would in part depend on the financial strength of the provider and their ability to keep bonuses above the ABR, even in poor market conditions.


With proportion
Whether an individual at retirement buys a pension annuity or a purchase life annuity and takes the income in arrears, this can be with or without proportion.

In the event of the annuitant's death during the period he or she was waiting for the next annuity payment in arrears, an annuity with proportion will pay to the estate a proportion of the payment now due. For example, for an annuity that makes the payment every quarter, if the death occurred halfway through the quarter then half of the annuity would be paid to the estate.

At retirement the individual can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuities, adding all the features necessary such as proportion especially if payments are quarterly, half yearly or annually in arrears. 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.