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   J - K - L
   Judicial separation    Limited price indexation    Life assurance
   Know your client rule    Long term care    Lump sum
   Level annuity    Lump sum death benefit    Legal Aid
   Lifetime allowance        

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Judicial separation
In judicial separation proceedings the partner will obtain from the court a decree of judicial separation and this means a legal separation of the partners although they will still be married but not have to live together whereas in divorce the decree nisi followed by the decree absolute is required before the proceedings are final.

A decree of judicial separation will only be granted, as with a divorce, on the grounds that the marriage has irretrievably broken down. The partner must prove; adultery of the other partner; unreasonable behaviour of the other partner; desertion by the other partner after two years; separation with consent after two years; and separation without consent after five years. As with nullity, judicial separation can be granted within 12 months of the marriage.

However, before the court grants a decree of judicial separation it will have to establish that the arrangements the partners have made for the children, if any, are acceptable to the court. Judicial separation will allow the partners to apply for a court order to settle disputes of children, matrimonial assets or financial matters during ancillary relief proceedings, such as an earmarking order issued against the members pension rights within a pension arrangement of the other partner, however, a pension sharing order will only apply to divorce or nullity.


Know your customer rule
The requirement of the adviser to evaluate an existing or prospective client's circumstances and investment objectives as would be reasonably expected in order to provide the best advice to the customer.


Legal Aid
In many situations a party to the divorce will not have the income to pay for legal costs, although there is value in the matrimonial assets. Legal Aid can therefore provide the funds to the party until the matrimonial assets are divided or sold. Ultimately, the cost of Legal Aid is paid for by the taxpayer.

It is usually the case that the husband will be in full time employment and the wife is at home looking after the children and has no income of her own. Therefore, the wife can successfully apply for Legal Aid whereas her husband must pay for the legal costs out of his income.

If the Legal Aid applicant is not successful, there will be no requirement to repay the associated costs. On divorce the matrimonial home is usually the largest asset and if the Legal Aid applicant is successful, some of the costs are then exempt, currently £3,000. Anything in excess of this amount can be recovered by the Legal Services Commission by applying a charge against the property. This means the cost of legal advice is deferred until the property is sold.

Legal Aid also applies for fees associated with the valuation of pension arrangements. Whilst each application for Legal Aid is considered by the Legal Services Commission on its own merits, the Legal Services Commission has agreed to cover fees for a pension audit service on a fixed fee basis.


Level annuity
At retirement an individual can select a level income for both a pension annuity (compulsory purchase annuity) or where they have a lump sum a purchased life annuity.

If the individual has a pension fund they can buy an annuity and have the option to use an open market option to search for the highest pension annuity, adding all the features necessary such as an income on a level basis. 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.

By purchasing a level annuity income, an annuitant will receive a greater income initially than if they purchase an annuity with RPI escalation or fixed rate escalation. If inflation remains low, it could take more than 20 years for an annuity with escalation matches the return from a level annuity. An alternative would be a with profits annuity where the annuitant can select an income that matches the level annuity income, but could still increase in the future if bonus declared are higher than the Anticipated Bonus Rate (ABR) selected by the annuitant.

By choosing a level annuity, if the annuitant is aged 65 and dies at the age of 85, there would be no difference between a level and escalating annuity at current rates of inflation. However, if inflation rises during this time then this could significantly reduce the buying power of a level annuity income and hence reduce the annuitant's standard of living.


Life assurance
A sum assured on the life of an individual usually as a spouses benefit or defendants benefit and payable on death of the life assured. This is known as death in service benefit when provided in addition to a final salary pension.


Lifetime allowance
Based on the pension simplification rules from April 2006, a lifetime allowance is the maximum amount of pension savings that can benefit from tax relief and has been initially set at £1.5 million. This figure will rise over time and the proposed amounts are as follows:

2007 - £1.6 million
   
2008 - £1.65 million
   
2009 - £1.75 million
   
2010 - £1.8 million

The standard lifetime allowance is based on the approximate amount of money that would be needed to purchase a pension equal to the maximum HM Revenue & Customs (HMRC) would permit under the tax regime. Funds in excess of the lifetime allowance are felt to have benefited unduly from pension scheme tax advantages and therefore a tax charge is made.

Funds that exceed the lifetime allowance can be taken as a lump sum and in this case the lifetime allowance charge would be at 55%. There is a lifetime allowance charge of 25% on pension funds that exceed the lifetime allowance and are used to provide a pension income. The income would also be subject to income tax at the individuals marginal rate and probably this would be a 40% higher rate tax, therefore the likely overall effect would be a tax rate of 55%.


Limited price indexation
All approved schemes and exempt approved schemes such as final salary and money purchase occupational pension schemes that are contracted out and contracted in, must escalate pension income from retirement age at limited price indexation (LPI).

Protection from inflation is provided by LPI at the retail price index (RPI) with a 5.0% ceiling. LPI applies from 6 April 1997 and includes protected rights benefits from contracted out final salary pensions as well as personal pensions in respect of Department of Social Security (DSS) rebates for the 1997/1998 tax year onwards.


Long term care
Many people with elderly relatives are aware that long term care is a problem and has many associated costs. These costs can quickly erode assets such as savings and the family home. Long term care costs can vary significantly for different locations in the United Kingdom and for residential care or nursing care.

Residential care may cost an average from £13,400 to £16,400 depending on the location in the UK, whereas nursing care could cost an average from £16,700 to £24,400 depending on the location in the UK.

According to the ABI, in the UK there are 9 million people over the age of 65. Of those aged over 70 approximately 20% receive some form of home assistance and 4% receive home assistance on a continuous basis. There are 500,000 people in residential care and the total cost of long term care in 2001 exceeded £4 billion.

If the individual has a medical condition and can no longer look after themselves, state benefits could be payable to contribute to the cost of long term care, whether the individual is still at home or in a nursing home. To qualify for other benefits to fund long term care, means testing is used to evaluate the individual.

Where the assets of the individual are less than £12,250 in England (£11,750 in Scotland and £13,500 in Wales) all the funding for long term care can be provided by the Local Authority or in the case of a major medical condition, by NHS funding. Where the assets are greater than £20,000 in England no funding is provided by the Local Authority but it may be possible to receive partial NHS funding. Partial funding by the NHS is determined by the local primary care trust using nursing care bands. Once all benefits are considered, any shortfall must then be met by the individual although by using an immediate needs annuity this long term care cost can be capped.


Lump sum
A tax free lump sum payment commuted to cash from a pension scheme fund, normally paid when the pension is drawn on the first day of retirement. For a defined contribution scheme such as personal or stakeholder pension and money purchase scheme the tax free lump sum is currently 25.0% of the fund value.

Since Pension Simplification from 6 April 2006, all pensions can commute tax free cash on the 25.0% of fund value basis including an occupational final salary and money purchase schemes.

Previous to A-Day this lump sum was derived from a formula based on the members final remuneration and number of years in employment. This would be either 2.25 times the pension income at retirement age or, if greater, 3/80ths for each year of service up to retirement times the final remuneration for the year up to a maximum of 1.5 times final remuneration.


Lump sum death benefit
Associated with occupational pension schemes are lump sum death benefits. In the event of the death of a scheme member, a tax free lump sum will be paid to the beneficiary that is usually the spouse. In small to medium size companies this death in service benefit is offered through a life assurance arrangement that is separate from the company pension scheme.

In large companies the scheme will self-insure the risk. The benefit is calculated as a multiple of basic salary and is typically four times but could be as low as two or as high as ten depending on the scheme rules. On death this lump sum will be paid to the beneficiary free of tax.

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  55 £4,164  
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  60 £4,367  
  65 £4,895  
  70 £5,348  
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