There are lots of technical terms and references in pensions legislation that are prescribed by Financial Authorities and the Regulators.
This Glossary attempts to explain in more detail some of the major terms used, however please give us a call if you require clarification and our
specialist team will be able to help.
All information published is correct as at August 2013.
- Annual Allowance
- The annual allowance is the maximum tax relievable amount that can be paid to a pension scheme. The current allowance is £40,000 pa.
- Annual Allowance charge
- A tax charge at the rate of 40% in respect of the amount of contribution to one or more registered pension schemes exceeds the amount of the annual allowance for the tax year.
- A stream or collection of fixed payments that are paid over a specific period of time. See Lifetime Annuity also.
- A person/s who is entitled to the benefit of any trust arrangement.
- Benefit Crystallisation Event
- Previously referred to as retirement.
Whenever a benefit crystallisation event occurs, a certain amount is deemed to crystallise for lifetime allowance purposes. The amount crystallised represents the capital value of the benefit and is measured against the lifetime allowance to ensure this is not exceeded.
- A pension scheme may borrow up to 50% of its total net asset value for any approved purpose. This can facilitate the payment of benefits or assist in the purchase of further investments, normally commercial property.
- Carry Forward
- A rule that allows some investors to carry forward unused annual allowance from the previous three years and catch up on pension contributions that may have been missed.
- Capped Drawdown
- Income that is paid to a member direct from a pension scheme:
- Chargeable Amount
- The amount that crystallises for lifetime allowance at a benefit crystallisation event that is in excess of an individual’s lifetime allowance. The chargeable amount is the amount on which the lifetime allowance charge arises.
- Connected Party
- A connected party is:
- A Scheme member
- A Scheme members husband or wife
- A Scheme member’s relative
- A Scheme member’s husband or wife’s relative
- A Scheme member’s business partner and their husband, wife or relative
- A company controlled by a scheme member either alone, or with the persons listed above, where the participating employer(s) is not controlled by the a scheme member alone or with any persons listed above. Relative means a brother, sister, ancestor or lineal descendant. It does not include nephews, nieces, uncles and aunts.
- 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. A child of the member is a dependant of the member if the child has:
- Not reached the age of 23
- Has reached aged 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.
- See Capped Drawdown
- Enhanced Protection
- Protection of all benefits accrued before 6 April 2006 (and all growth thereafter) from the lifetime allowance. This is subject to certain conditions being met, for example no further pension contributions can be paid.
- Finance Act 2004
- An Act which changed the taxation of pensions to a more simplified regime.
- Financial Conduct Authority (FCA)
- The FCA were previously known as the FSA (Financial Services Authority) up until 1 st April 2013. The previous roles of the FSA have now been split between the FCA and the PRA (Prudential Regulation Authority). The FCA is responsible for regulating the standards of conduct in retail and wholesale, financial markets and for supervising the infrastructure that supports those markets. The FCA also has responsibility for the prudential regulation of firms.
- Financial Services and Markets Act 2000 (FSMA 2000)
- An Act which was established by the FSA.
- Fixed Protection 2012
- The Lifetime Allowance (LTA) reduced from £1.8 million to £1.5 million in April 2012. Fixed Protection was introduced for those with expected pension savings over £1.5 million and provides a fixed LTA of £1.8 million instead of the newly introduced £1.5 million. However all pension contributions had to cease as at 5 April 2012.
- Fixed Protection 2014
- The Lifetime Allowance (LTA) reduced from £1.5 million to £1.25 million in April 2014. Fixed Protection was introduced for those with expected pension savings over £1.25 million and provided a fixed protection of £1.5 million instead of £1.25 million. However all pension contributions had to cease as at 5thApril 2014.
- Fixed Protection 2016
- The Lifetime Allowance (LTA) reduced from £1.25 million to £1 million in April 2016. Fixed Protection has been introduced for those with expected pension savings over £1 million and provides a fixed protection of £1.25 million instead of the newly introduced £1 million. However all pension contributions had to cease as at 5thApril 2016.
- Flexible Access allows unlimited amounts to be withdrawn from a pension fund without the restrictions applying to capped drawdown. This includes drawing down the whole fund. The first 25% of the fund is usually tax free and the remainder is taxable at the recipient’s marginal rate of tax. Where a taxable amount is paid the recipient’s future maximum tax relievable pension contribution reduces to £4,000 pa (this reduced from the previous £10,000 per annum limit on 6 April 2017). This is known as the Money Purchase Annual Allowance
- Government Actuary’s Department — They supply the tables of annuity rates produced by the Government Actuary, on behalf of HM Revenue & Customs.
- GAD Tables
- The Government Actuary’s Department tables work out the ‘basis amount’ for calculating the maximum income from capped pension funds.
- Her Majesty’s Revenue & Customs. Formerly known as the Inland Revenue.
- Intellectual Property
- Intellectual Property (IP) is a field that refers to creations such as musical, literary, and artistic works; inventions; symbols; names; images; and designs used in commerce including:
Under Intellectual Property law, the holder has certain exclusive rights to the IP.
- and domain names
- Individual Protection 2014
- The Lifetime Allowance (LTA) reduced from £1.5 million to £1.25 million in April 2014. Individual protection was introduced for those with existing pension savings over £1.25 million. It gave a personalised LTA equivalent to the pension savings at 6th April 2014 up to £1.5 million. Pension contributions can continue but any funds over the personalised LTA will be subject to the Lifetime Allowance Charge.
- Individual Protection 2016
- The Lifetime Allowance (LTA) reduced from £1.25 million to £1 million in April 2016. Individual protection has been introduced for those with existing pension savings over £1 million. This gives a personalised LTA equivalent to the pension savings at 6th April 2016 up to £1.25 million. Pension contributions can continue but any funds over the personalised LTA will be subject to the Lifetime Allowance Charge.
- Lifetime Allowance
- The overall ceiling on the amount of tax exempt savings that any one individual can accumulate over the course of their lifetime. The standard lifetime allowance is £1,030,000 with effect from 6 April, 2018.
- Lifetime Allowance Charge
- An income tax charge on any pension benefits in excess of the lifetime allowance:
- 25% if the excess funds are retained in the pension fund;
- 55% if the excess funds are paid as a lump sum.
- Lifetime Annuity
- A pension contract purchased from an insurance company that provides a member with an income for life.
- A loan can be made to a connected employer as long as the following five conditions are met:
- Is secured as a first charge
- Does not exceed 50% of the net asset value of the pension fund
- Has a maximum term of 5 years
- Must be repaid in equal capital and interest instalments
- Interest must be at a commercial rate
- Money Purchase Annual Allowance
- This is the maximum tax relievable amount that can be paid to a Money Purchase pension scheme (like a SIPP or a SSAS). The current limit is £4,000 pa (this reduced from the previous £10,000 per annum limit on 6th April 2017) and this is triggered when taxable benefits are drawn from a pension fund.
- Occupational Pension Scheme
- A pension scheme established by an employer or employers to provide benefits to any or all of the employees.
- Pensions Act 1995
- An Act devised to improve the running of pension schemes.
- Pension Commencement Lump Sum
- A lump sum benefit paid to a member of a registered pension scheme which is paid tax free. This will normally be 25% of the pension fund unless special protection measures apply.
- Pension credit
- An amount of pension awarded to an ex spouse from a divorce settlement.
- Pension credit member
- An individual who has rights in a pension scheme because of pension credits that have been awarded.
- Pension debit
- An amount of pension reduced for a member because of a credit awarded to an ex-spouse from a divorce settlement.
- Pension sharing order
- An order or provision made as in section 28 (1) of the Welfare Reform and Pensions Act 1999 following a divorce or the dissolution of a civil partnership.
- Pension year
- The period the maximum drawdown limits apply to.
- Principal Employer
- The employer who establishes the pension fund/scheme on behalf of the members/employees. The employer can make contributions on the members’ behalf and borrow monies from the pension scheme via a commercial arrangement (see
- Primary Protection
- Protection of all funds over £1.5 million accrued before April 2006 from the lifetime allowance. The level of protection increases in line with increases in the lifetime allowance.
- Prudential Regulation Authority
- Regulates systematically important financial institutions
- Qualifying recognised overseas pensions (QROPS)
- A list of overseas pension schemes that a member may transfer to if it satisfies certain HMRC requirements.
- Registered Pension Scheme
- A pension scheme registered with HMRC under Part 4 Chapter 2 of the Finance Act 2004.
- Relevant UK earnings
- Income on which tax relief may apply to contributions in excess of £3,600 in a tax year. This
- employment income;
- income which is chargeable under Schedule D and is immediately derived from the carrying on or exercise of a trade, profession or vocation (whether ndividually or as a partner acting personally in a partnership);
- income to which section 529 of Income and Corporation Taxes Act 1988 (ICTA) (patent income of an individual in respect of inventions) applies.
- Relevant UK individual
- An individual is a relevant UK individual for a tax year if:
- the individual has relevant United Kingdom (UK) earnings chargeable to income tax
for that year,
- the individual is resident in the UK at some time during that year,
- the individual was resident in the UK both at some time during the five tax years] immediately before that year and when the individual became a member of the pension scheme, or
- the individual, or the individual’s spouse, has for the tax year general earnings from overseas Crown employment subject to UK tax.
- Scheme Administrator
- The person or body appointed to be responsible for the discharge of the functions conferred or imposed by the rules of the scheme.
The Scheme Administrator must be resident in an EU member state or in Norway, Liechtenstein or Iceland.
- Scheme chargeable payment
- A taxable payment made by the scheme as a result of a breach in HMRC regulations.
- Scheme pension
- A pension provided by an insurance company or scheme administrator for life that provides a member with an income for life.
- Serious ill health
- It will be possible for members to totally commute any benefits not yet in payment on the grounds of serious ill-health at any age prior to 75. This will be subject to the Scheme Administrator obtaining medical evidence confirming that the member’s life expectancy is less than one year. The amount of the commuted benefits will be tested against their available lifetime allowance, and as long as the benefits are less than this they will be paid tax-free.
- Standard Lifetime Allowance
- See Lifetime Allowance
- The principal duty for a Trustee is to act impartially, diligently and with utmost good faith. They must always ensure that they act in the best interest of the scheme members and or pensioners. The responsibilities are usually defined within the Trust Deed and Rules which govern the pension scheme or Trust.
- Trustee Act 2000
- This Act replaced the powers from the previous Trustee Investments Act of 1961. The Act amended the law relating to Trustees and persons having the investment powers of Trustees; and for connected purposes.
- Unauthorised Employer payment
- 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 2004 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 in a pension scheme that have not as yet been used to provide that member with a benefit.
This information reflects the regulatory and taxation situation as it affects pensions at the time of publication in April 2017 and is provided to the best of our knowledge. It is not a complete representation of the pensions legislator landscape and is for guidance and information purposes only. We cannot be held responsible for any errors, omissions or subsequent legislative changes.
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For further information on your pension scheme administered by Morgan Lloyd, or any enquiry, please do not hesitate to call and one of our team members will be happy to help