Data
Protection Act 1998
With reference to pensions the Data Protection Act 1998 (DPA
98) affords a scheme member the right to know what data is
held about them. There are new provisions of the DPA 1998
with effect from the 24 October 2001 that apply to an employers
pension scheme such as a final
salary pension, small self administered scheme (SSAS)
or contracted in money purchase scheme (CIMPs) and group personal
pension (GPP)
or group stakeholder pensions.
The provisions require that the scheme trustees become data
controllers and are responsible for access and security of
any scheme
member personal data that is held on a computer system
or in a structured filing system. They are also responsible
to make sure that anyone who processes data on their behalf,
known as a data processor, provides sufficient guarantees
as to the confidentiality and security of data processed.
The scheme
trustees must notify the informations commissioner that
they are data controllers of their scheme and must tell scheme
members the reasons why personal data about them is held and
who the data can be passed to.
Death
in service benefits
If the scheme member dies a tax free lump sum will be payable
to a dependent or beneficiaries and in the case of a married
couple this would almost certainly be the spouse. The tax
free lump sum payable depends on each pension scheme rules
but is typically four times the basic salary. On payment of
this benefit there is no liability to income tax to the dependent.
Decree
absolute
In divorce proceedings two decrees must be applied for to
end the marriage, unlike nullity and judicial
separation where only one decree is required. The initial
process in a divorce petition will be to obtain a decree nisi
from the court and for this to be issued the partner must
show to the court that the marriage has irretrievably broken
down.
The divorce
will be final and the marriage ends when the decree absolute
is granted, no earlier than six weeks and one day after the
decree nisi. However, before the courts grant a decree absolute
the parties must come to an agreement over the divorce and
to specify arrangements for the children, if there are any.
The couple may use offsetting to resolve the division of matrimonial
assets and financial matters and this could take much longer
than the divorce.
These ancillary
relief proceedings may include pension arrangements where
earmarking and pension sharing can be used in addition to
offsetting. A pension
sharing order can only be issued by the court against
a members pension rights after the decree nisi, however, once
the decree absolute is granted the pension sharing order cannot
be subject to a variation
of settlement order.
Decree
nisi
To finalise judicial separation, nullity
or divorce a partner will have to apply to the courts for
a decree. In divorce proceedings this is completed in two
stages, the first being the decree nisi. Their partner will
have to acknowledge to the court that he or she does not oppose
the divorce.
Once the court has granted the decree nisi the partner must
wait six weeks and one day before applying to the court for
the decree absolute. When the decree absolute is granted the
divorce is final and the spouse is no longer married to their
partner.
Deferred
annuity
A deferred annuity have in the past been used for both a pension
annuity (compulsory purchase annuity) connected with a
pension fund or a purchased
life annuity, but are more frequently used for immediately
needs annuities. It offers an annuity that can be payable
at some date in the future. The period between the start date
and the maturity date is known as the deferred period and
on maturity an income is paid for the rest of the annuitants
life.
A deferred period is expensive as there is a cost
of delay. During the deferred period it is usual for the
annuitant to continue to pay regular premiums. In the event
of the death of the annuitant during the deferred period,
the premiums are typically returned to the estate and this
may also include interest depending on the provider's terms.
For purchase life annuities a cash option instead of the annuity
can be offered.
A deferred
annuity as part of an immediate
needs annuity could be used when a relative enters a nursing
home. If the prognosis is they will live for less than 2 years,
then a deferred period of 2 years would be chosen. The estate
would pay for the first two years of nursing home care and
the deferred annuity would pay subsequent long
term care costs for the rest of the annuitants life.
For many people conventional annuities from their existing
provider offer "poor value for money". As deferred
annuities are rarely offerd by providers to individuals, one
way to defer an conventional annuity purchase is a With
Profits annuity. Here the annuitant can receive an income
from an annuity and use a future
annuity transfer option to convert to a conventional annuity
at a later date.
Deferred
pension
The Social Security Act 1973 (SSA
73) gave the scheme member the statutory right to the
retirement benefits accrued in a previous employer pensions
scheme prior to leaving. These can be left as preserved
benefits until the normal retirement date (NRD) of the
scheme and are referred to as a deferred pension. As a result
of Social Security Act 1986 the members pension rights can
be left as a deferred pension if the individual leaves with
two or more years of pensionable service.
For a final salary pension the members deferred pension could
be granted discretionary
benefits by the scheme trustees and could be entitled
to other benefits such as a widows pension. Since the Social
Security Act 1990 all occupational pension schemes must incorporate
indexation of accrued benefits in line with the retail price
index (RPI) to retirement age. Since 6 April 1997 limited
price indexation (LPI) has applied to approved schemes and
exempt approved
schemes for indexation of pension income after retirement
age, including deferred pensions.
In a final salary pension deferral may result in the member
benefiting from any surplus realised in the scheme. For an
occupational
money purchase such as an contracted
out money purchase scheme (COMPS) scheme or group personal
pension (GPP) indexation does not apply on deferral but the
pension fund value will increase by the investment return
on the underlying assets.
Defined
benefit scheme
A pension scheme where the rules specify the benefits to be
paid to the members at retirement is known as a defined benefit
scheme. Both the employer and member can finance the scheme
to meet the benefit obligations in the future from the contributions
made and this is known as a contributory scheme. A non
contributory scheme is where only the employer makes contributions
to the scheme.
The benefits to the member will depend on the number of years
of service, the final salary at the normal pension age (NPA)
and the accrual
rate of the scheme. The accrual rate will de determined
by the employer and for existing schemes is usually a 1/60th
for each full year of service by the member. The member will
reach the Inland Revenue maximum benefits from a defined benefit
scheme of 2/3rds final salary after 40 years of work.
Defined
contribution scheme
A pension scheme where the rules specify only the rate of
the contribution, such as a free standing additional contribution
(FSAVC),
stakeholder pension or money purchase scheme, are known as
defined contribution schemes. These schemes could be funded
by an individual as a private pension or established by a
company as an employer pension.
In this case the pension will be called a group scheme with
individual policy holders being the members and where the
benefits accrued by the members belong to them. In the event
of the member leaving
service early, the benefits accrued including any employer
contributions can be transferred to another provider or left
in the group scheme.
Dependents
pension rights
The Inland Revenue maximum pension income paid to a surviving
dependent or spouse is 2/3rds of the maximum members pension
that would have been paid at the normal retirement
age, assuming the members current pensionable earnings.
A dependent can be a wife, husband or under-age child even
if they are not dependent financially.
If the dependent is a child, the survivors'
pension rights must stop at the age of 18 or when full-time
education ends, if later. A dependent can be an unmarried
partner such as 'common-law' wife, husband or partner of the
same sex. The dependents pension income will be paid if death
occurs after retirement and the pension will be increased
by limited price indexation (LPI),
which is in line with the retail
price index (RPI) up to a 5% ceiling.
Designated
professional body
A designated professional body (DPB) will be so designated
by HM Treasury under section 326 of the Financial Services
and Markets Act 2000 (FSMA).
A DPB could include the Law Society and Institutes of Chartered
Accountants that supervise and regulate exempt
professional firms. A DPB must cooperate with the with
the suer-regulator, the Financial Services Authority (FSA),
especially with regard to sharing information.
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