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Pensions Glossary

Active member

An individual who has benefits currently accruing for or in respect of that person under one or more arrangements in the pension scheme.


Alternatively secured pension

Before 6 April 2011 payment of income withdrawals direct from a money purchase arrangement to the member of the arrangement (aged 75 or over) and that met the conditions laid down in paragraphs 12 and 13 of Schedule 28 to the Finance Act 2004.

 

Annual allowance

For the following tax years the annual allowance was:

2007-08: £225,000

2008-09: £235,000

2009-10: £245,000

2010-11: £255,000 

From 6 April 2011 - for the tax year 2011-12 the annual allowance was £50,000 and subsequent tax years the annual allowance was £50,000 unless changed by an order made by the Treasury.  For the following tax years the annual allowance was:

2012-13: £50,000

2013-14: £50,000

From 6 April 2014 - for the tax year 2014-15 and subsequent tax years the annual allowance is £40,000 unless changed by an order made by the Treasury.

 

Annual allowance charge

Before 6 April 2011 - was a charge at the rate of 40% in respect of the amount by which the total pension input amount for a tax year in the case of an individual who is a member of one or more registered pension schemes exceeds the amount of the annual allowance for the tax year. From 6 April 2011 - a charge at the ‘appropriate rate’ in respect of the amount by which the total pension input amount for a tax year in the case of an individual who is a member of one or more registered pension schemes exceeds the amount of the annual allowance. (That amount of annual allowance is increased by unused annual allowance carried forward from any of the previous three tax years, if the individual has such available unused annual allowance.)

 

BCE

Benefit crystallisation event

Is a defined event or occurrence that triggers a test of the benefits 'crystallising' at that point against the individual's available lifetime allowance. 

 

Capped drawdown pension

A form of ‘income withdrawal’ where a members’ pension is paid direct from a drawdown pension fund. Within certain limits the member can choose how much pension they can get each year

 

Defined benefits arrangement

An arrangement other than a money purchase arrangement that provides only defined benefits. “Defined benefits” are calculated by reference to the earnings or the service of the member, or by any other means except by reference to an available amount for the provision of benefits to or in respect of the member, (thus making the definitions of money purchase and defined benefit arrangements mutually exclusive). A defined benefit arrangement is, typically, a ‘final salary’ scheme, that is, one where the level of benefits paid is calculated by reference to the member’s final salary and length of service with the employer. Contributions are often made to such an arrangement, and so there may be a pension fund or pot, but the benefits that may be paid are not calculated by reference to that fund or pot.

 

Dependant

A person who was married to, or a civil partner of, the member at the date of the member’s death is a dependant of the member.Additionally, if the rules of the pension scheme so provide, the above test can be extended to apply not only at the date of the member’s death, but to extend to the point in time when the member first became actually entitled to a pension under the pension scheme.  A child of the member is a dependant of the member if the child has

•not reached the age of 23, 

•has reached age 23 and, in the opinion of the scheme administrator, was at the date of the member’s death dependent on the member because of physical or mental impairment, Dependants’ capped drawdown pension

A form of ‘income withdrawal’ where a dependants’ pension is paid direct from a dependants’ drawdown pension fund. Within certain limits the recipient can choose how much pension they can get each year. Up to 5 April 2011 this was called either dependants’ unsecured pension or dependants’ alternatively secured pension.

 

Dependants’ drawdown pension

A dependants’ short term annuity or income withdrawal paid to a dependant of a deceased member of a registered pension scheme. Up to 5 April 2011 this was called either dependants’ unsecured pension or dependants’ alternatively secured pension.

 

Dependants’ drawdown pension fund

A dependant’s drawdown pension fund in respect of an arrangement in a registered pension scheme consists of such of the sums or assets held for the purposes of the arrangement that a dependant has designated as available for dependants’ drawdown pension and have not been applied towards the provision of a dependants’ scheme pension or dependants’ annuity. Up to 5 April 2011 this was called either a dependants’ unsecured pension fund or a dependants’ alternatively secured pension fund.

 

Dependants’ flexible drawdown pension

A form of ‘income withdrawal’ where the dependants’ pension is paid direct from a dependants’ drawdown pension fund. There is no limit on the amount that the registered pension scheme can pay the recipient in any year.

 

Dependants' scheme pension

A pension paid to a dependant of a member of a registered pension scheme following the death of that member, the entitlement to which is an absolute entitlement under the scheme and that meets the conditions laid down in paragraph 16, Schedule 28 to the Finance Act 2004.


Dependants' short-term annuity

Before 6 April 2011 was an annuity contract purchased from a dependants' unsecured pension fund held under a money purchase arrangement that provided that dependant with an income for a term of no more than five years (not reaching to or beyond their 75th birthday), and which met the conditions imposed through paragraph 20, Schedule 28 to the Finance Act 2004. This definition covers replacement assets purchased after the initial 'designation' from such funds, or any capital growth from or income generated by assets held in the fund (whether held at the time of 'designation' or where replacement assets).From 6 April 2011 An annuity contract purchased from a dependants' unsecured pension fund held under a money purchase arrangement that provides that dependant with an income for a term of no more than five years and which meets the conditions imposed through paragraph 20, Schedule 28 to the Finance Act 2004. This definition covers replacement assets purchased after the initial 'designation' from such funds, or any capital growth from or income generated by assets held in the fund (whether held at the time of 'designation' or where replacement assets).

 

Dependants' unsecured pension

Before 6 April 2011 payments of income withdrawals direct from a money purchase arrangement, or income paid from a dependants' short-term annuity contract purchased from such an arrangement, to a dependant(aged under 75) of the scheme member who established the arrangementand that met the conditions laid down in paragraph 20 and 23 to 24 of Schedule 28 to the Finance Act 2004.

 

Dependants' unsecured pension fund

Before 6 April 2011 funds (whether sums or assets) held under a money purchase arrangement that had been 'designated' after the death of a scheme member to provide a particular dependant of that member (aged under 75) with a dependants' unsecured pension, as identified in paragraph 22 of Schedule 28 to the Finance Act 2004. Once sums or assets had been 'designated' as part of a 'dependants' unsecured pension fund', any capital growth or income generated from such sums or assets were equally treated as being part of the 'dependants' unsecured pension fund'. Similarly, where assets were purchased at a later date from such funds, or 'sums' generated by the sale of assets held in such funds, those replacement assets or sums also fell as part of the 'dependants' unsecured pension fund' (as did any future growth or income generated by those assets or sums).

 

Drawdown pension

A short term annuity or income withdrawal paid to a member of a registered pension scheme. Up to 5 April 2011 this was called unsecured pension or alternatively secured pension.


Drawdown pension fund

A pension fund in respect of an arrangement consisting of such of the sums or assets held for the purposes of the arrangement as are member-designated funds. Up to 5 April 2011 this was called an unsecured pension fund or an alternatively secured pension fund.


Drawdown pension fund lump sum death benefit

A lump sum death benefit paid in respect of income withdrawal to which the member (or dependant) was entitled under an arrangement at the date of the member’s (or dependants’) death not exceeding the market value of the sums and assets representing the member’s (or dependant’s) drawdown pension fund in respect of the arrangement immediately before the payment.


Flexible drawdown

A form of ‘income withdrawal’ where the members’ pension is paid direct from a drawdown pension fund. There is no limit on the amount that the members’ pension scheme can pay the member in any year.

 

GAD

The Government Actuary’s Department.

 

Lifetime allowance

The lifetime allowance is an overall ceiling on the amount of tax privileged pension savings that any one individual can draw. The exact figure will be whatever the 'standard lifetime allowance' for the tax year concerned is or a multiple of this figure where certain circumstances apply.


Lifetime allowance charge

A charge to income tax that arises on any chargeable amount generated at a 'benefit crystallisation event'. The rate of charge is either 25% or 55%, depending on whether the 'event' giving rise to the charge was the payment of a lump sum or not. The scheme administrator and member are jointly liable to the charge, except where the chargeable amount arises following the death of the member. Here, the recipient of the payment giving rise to the charge is solely liable.

 

Lifetime annuity

An annuity contract purchased under a money purchase arrangement from an insurance company of the member's choosing that provides the member with an income for life, and which meets the conditions imposed through paragraph 3, Schedule 28 to the Finance Act 2004.

 

Market value

The market value of an asset held for the purposes of a pension scheme is to be determined in accordance with section 272 of the Taxation of Chargeable Gains Act 1992 and section 278(2) to (4) Finance Act 2004 (where dealing with a right or interest in respect of money lent directly or indirectly to certain parties).

 

Member

An individual who is either an active member, a pensioner member, a deferred member or a pension credit member of a pension scheme.


Money purchase benefits

Benefits provided under a pension scheme, the rate or amount of which is calculated by reference to an amount available for the provision of benefits to or in respect of the member (whether the amount so available is calculated by reference to payments made under the scheme by the member or any other person or employer on behalf of the member, or any other factor).

 

Money purchase arrangement

An arrangement is a money purchase arrangement if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are cash balance or other money purchase benefits.


Occupational pension scheme

A pension scheme established by an employer or employers and having (or capable of having) effect so as to provide benefits to or in respect of any or all of the employees of that employer or employers, or any other employer (whether or not it also has effect so as to provide benefits to or in respect of other persons, or is capable of having such effect).

 

Pension commencement lump sum

Before 6 April 2011 a lump sum benefit paid to a member of a registered pension scheme (aged under 75) in connection with an arising entitlement to a pension benefit (other than a short-term annuity contract), and which meets the conditions detailed in paragraphs 1 to 3 of Schedule 29 to the Finance Act 2004.From 6 April 2011 a lump sum benefit paid to a member of a registered pension scheme in connection with an arising entitlement to a pension benefit (other than a short-term annuity contract), and which meets the conditions detailed in paragraphs 1 to 3 of Schedule 29 to the Finance Act 2004.

 

Pension credit

The pension sharing provisions in the Welfare Reform and Pensions Act 1999 (WRPA) introduced the ‘pension debit’ and ‘pension credit’. The ‘pension debit’ is the amount by which the value of the original member’s pension rights are reduced and the ‘pension credit’ the corresponding amount by which the ex-spouse’s or former civil partner's pension rights are increased. Section 29 WRPA determines the value of the pension credit to be transferred to the ex-spouse or former civil partner.


Pension credit member

An individual who has rights in a pension scheme which are directly or indirectly attributable to pension credits.

 

Pension scheme

A pension scheme is a scheme or other arrangements which is comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of persons on retirement, on death, on having reached a particular age, on the onset of serious ill-health or incapacity or in similar circumstances.

 

Public service pension scheme

A pension scheme

•established by or under any enactment,

•approved by a relevant governmental or Parliamentary person or body, or

•specified as being a public service pension scheme by a Treasury order.

 

Qualifying overseas pension scheme

An overseas pension scheme is a qualifying overseas pension scheme if it satisfies certain HMRC requirements. The scheme manager must notify HMRC that the scheme is an overseas pension scheme and provide evidence to HMRC where required. The scheme manager must also sign an undertaking to inform HMRC if the scheme ceases to be an overseas pension scheme and comply with any prescribed benefit crystallisation information requirements imposed on the scheme manager by HMRC. The overseas pension scheme must not be excluded by HMRC from being a qualifying overseas pension scheme.

 

Qualifying recognised overseas pension scheme

A recognised overseas pension scheme is a qualifying recognised overseas pension scheme if it satisfies certain HMRC requirements. The scheme manager must notify HMRC that the scheme is a recognised overseas pension scheme and provide evidence to HMRC where required. The scheme manager must also sign an undertaking to inform HMRC if the scheme ceases to be a recognised overseas pension scheme and comply with any prescribed information requirements imposed on the scheme manager by HMRC. The recognised overseas pension scheme must not be excluded by HMRC from being a qualifying recognised overseas pension scheme.

 

Scheme administration employer payment

Payments made

•by a registered pension scheme that is an occupational pension scheme,

•to or in respect of a sponsoring employer or a former sponsoring employer

•for the purposes of administration or management of the scheme.

 

Scheme administration member payment

Payments made by a registered pension scheme to or in respect of a member or a former member for the purposes of administration or management of the scheme.

 

Scheme administrator

The person(s) appointed in accordance with the pension scheme rules to be responsible for the discharge of the functions conferred or imposed on the scheme administrator of the pension scheme by and under Part 4 of Finance Act 2004. This person must be resident in an EU member stateor in Norway, Liechtenstein or Iceland (EEA states which are not EU states). 

 

Short-term annuity

Before 6 April 2011 an annuity contract purchased from a member's unsecured pension fund held under a money purchase arrangement that provides that member with an unsecured pension income for a term of no more than five years (not reaching to or beyond their 75th birthday), and which meets the conditions imposed through paragraph 6, Schedule 28 to the Finance Act 2004.From 6 April 2011 an annuity contract purchased from a member's unsecured pension fund held under a money purchase arrangement that provides that member with an unsecured pension income for a term of no more than five years, and which meets the conditions imposed through paragraph 6, Schedule 28 to the Finance Act 2004.

 

Sponsoring employer

In relation to an occupational pension scheme means the employer, or any of the employers, to or in respect of any or all of whose employees the pension scheme has, or is capable of having, effect as to provide benefits.

 

Total pension input amount

The aggregation of the pension input amounts in respect of each arrangement relating to an individual under a registered pension scheme of which the individual is a member.


Transfer lump sum death benefit

A lump sum benefit paid from a money purchase arrangement for the benefit of another member of the same pension scheme following the death of a scheme member (or a dependant of such a member), who is aged 75 or over, which meets the conditions of paragraph 19, Schedule 29 to the Finance Act 2004. Such a lump sum cannot be paid where there is still a surviving dependant of the member.

 

Trivial commutation lump sum

Before 6 April 2011 a lump sum benefit paid to a member of a registered pension scheme (aged under 75) because their pension entitlements (under both that scheme and other such schemes) are deemed trivial, and which met the conditions of paragraphs 7 to 9 of Schedule 29 to the Finance Act 2004.From 6 April 2011 to 26 March 2014, a lump sum benefit paid to a member of a registered pension scheme because their pension entitlements (under both that scheme and other such schemes) are deemed trivial, and which met the other conditions of paragraphs 7 to 9 of Schedule 29 to the Finance Act 2004.For payments in commutation periods starting on or after 27 March 2014, a lump sum benefit paid to a member of a registered pension scheme because their pension entitlements (under both that scheme and other such schemes) were valued at £30,000 or less on the nominated date, and which meets the other conditions of paragraphs 7 to 9 of Schedule 29 to the Finance Act 2004.

 

Trivial commutation lump sum death benefit

Before 6 April 2011 a lump sum benefit paid to a dependant of a scheme member of a registered pension scheme (who died before age 75) because that dependant's entitlement under that scheme is deemed trivial, and which met the conditions of paragraph 20 of Schedule 29 to the Finance Act 2004.From 6 April 2011 a lump sum benefit paid to a dependant of a scheme member of a registered pension scheme because that dependant's entitlement under that scheme is deemed trivial, and which meets the other conditions of paragraph 20 of Schedule 29 to the Finance Act 2004.

 

Unauthorised employer payment

An unauthorised employer payment is

•a payment by a registered pension scheme that is an occupational pension scheme to or in respect of a sponsoring employer or a former sponsoring employer which is not an authorised employer payment, or

•anything which is treated as being an unauthorised payment to a sponsoring employer or former sponsoring employer under Part 4 of Finance Act 2004.

Unauthorised member payment

An unauthorised member payment is

•a payment by a registered pension scheme to or in respect of a member or a former member of that pension scheme that is not an authorised member payment, or

•anything which is treated as being an unauthorised payment to or in respect of a member or former member under Part 4 of Finance Act 2004.

Unauthorised payments charge

Tax due under section 208 Finance Act 2004 on either unauthorised member payments or unauthorised employer payments. The rate of tax is 40% of the unauthorised payment.

 

Unauthorised payments surcharge

Tax due under section 209 Finance Act that is paid in addition to the unauthorised payments charge. The tax will be due where total unauthorised payments go over a set limit in a set period of time of no more than 12 months. The rate of tax is 15% of the unauthorised payments.


Uncrystallised funds

Funds held in respect of the member under a money purchase arrangement that have not as yet been used to provide that member with a benefit under the scheme (so have not crystallised), as defined in paragraph 8(3) of Schedule 28 to the Finance Act 2004. These are defined differently for cash balance arrangements. Here it is what funds there would be if the member decided to draw benefits on a particular date not the funds actually held in the cash balance arrangement at that time.

 

Uncrystallised funds lump sum death benefit

Before 6 April 2011 a lump sum benefit paid from a money purchase arrangement following the death of the scheme member before the age of 75 (and within two years of that date of death) from any uncrystallised funds the member held in that arrangement at the point of death, and as defined in paragraph 15, Schedule 29 to the Finance Act 2004.From 6 April 2011 A lump sum benefit paid from a money purchase arrangement following the death of the scheme member from any uncrystallised funds the member held in that arrangement at the point of death within two years of the date that the scheme administrator knew of the death (or could reasonable be expected to have known of it if earlier), and as defined in paragraph 15, Schedule 29 to the Finance Act 2004. However, if the member was 75 or older at the time of death the two year limit does not apply.


Unit trust scheme manager

This means one of the following(a) a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to manage unit trust schemes authorised under section 243 of that Act, or(b) a firm which has permission under paragraph 4 of Schedule 4 to the Financial Services and Markets Act 2000 (as a result of qualifying for authorisation under paragraph of that Schedule; Treaty firms) to manage unit trust schemes authorised under that section.

 

Unsecured pension

Before 6 April 2011 payment of income withdrawals direct from a money purchase arrangement, or income paid from a short-term annuity contract purchased from such an arrangement, to the member of the arrangement (aged under 75) and that met the conditions laid down in paragraph 6 and 8 to 10 of Schedule 28 to the Finance Act 2004.


Unsecured pension fund

Before 6 April 2011 funds (whether sums or assets) held under a money purchase arrangement that had been 'designated' to provide a scheme member (aged under 75) with an unsecured pension, as identified in paragraph 8 of Schedule 28 to the Finance Act 2004. Once sums or assets had been 'designated' as part of an 'unsecured pension fund' any capital growth or income generated from such sums or assets were equally treated as being part of the 'unsecured pension fund'. Similarly where assets were purchased at a later date from such funds, or 'sums' generated by the sale of assets held in such funds, those replacement assets or sums also fell as part of the 'unsecured pension fund' (as did any future growth or income generated by those assets or sums).

 

Valuation assumptions

The valuation assumptions in relation to a person, benefits and a date are assumptions

1 - If the person has not reached such age (if any) as must have been reached to avoid any reduction in the benefits on account of age, that the person reached that age on the date, and

2 - That the person’s right to receive the benefits had not been occasioned by physical or mental impairment.

 

Winding-up lump sum

A lump sum benefit paid to a member of an occupational pension scheme because the scheme is being wound-up and their accrued benefits under the scheme are deemed ‘trivial’, and which meets the conditions of paragraph 10, Schedule 29 to the Finance Act 2004.

Winding-up lump sum death benefit

A lump sum benefit paid to a dependant of a member of an occupational pension scheme because the scheme is being wound-up and their accrued benefits under the scheme are deemed 'trivial', and which meets the conditions of paragraph 21, Schedule 29 to the Finance Act 2004.