Glossary

A

Annual allowance

The maximum pension savings someone can have each year that benefits from tax relief.

From April 6, 2012 onwards, the annual allowance is £50,000, unless the figure is changed in the Chancellor’s Budget .

Annual allowance charge

The annual allowance tax charge is paid on any pension savings over and above the annual allowance available for the year.

Effectively, the charge removes any tax relief on pension savings over the available annual allowance.

The amount paid depends on how much taxable income you have and the amount of your excess pension savings.

To find the amount, add the total excess pension savings to the amount of income income tax was paid on.

The amount of pension saving:

  • over the higher rate limit is taxed at 50%
  • over the basic rate limit but below your higher rate limit is taxed at 40%
  • below the basic rate limit is taxed at 20%

Authorised member payments

These are tax-free lump sums and other payments that are allowed under pension rules

B

BCE

Benefit crystallisation event

Benefit crystallisation event

This is when all or part of a pension starts making payments – like the tax-free lump sum or regular, monthly payments

C

Chargeable amount

The amount that crystallises for lifetime allowance at a benefit crystallisation event that is more than someone’s available lifetime allowance at that time. The chargeable amount is the amount on which the lifetime allowance charge is calculated.

F

FATCA

Foreign Accounts Compliance Tax Act

Foreign Accounts Compliance Tax Act

A US tax directive ordering US taxpayers with accounts, investments or other assets in offshore financial institutions to declare any earnings or gains from them to the US Internal Revenue Service.

Flexible drawdown

Flexible drawdown lets someone aged 55 or over with an annual income of more than £20,000 a year take unlimited income from a pension fund, but the money is taxed at their marginal rate.

401(k)

A definedcontributionplan offered to employees by the corporation they work for that lets employees set aside taxdeferred income for retirement.

The title 401(k) comes from the legislation that covers the way the program works.

G

GAD

Government Actuary’s Department (UK)

GAD tables

The Govrnment Actuary department (GAD) produces annuity rate tables for HM Revenue & Customs which are used to calculate the maximum amount of money that can be taken from a drawdown pension fund

H

HMRC

Her Majesty’s Revenue & Customs (UK)

HM Revenue & Customs

The government agency responsible for pensions oversight and tax collection

I

IRS

Internal Revenue Service (US)

Internal Revenue Service

The US government agency responsible for collecting taxes

L

Lifetime allowance

The lifetime allowance is the cap on the amount of tax relieved pension savings someone can draw. The exact figure is the prevailing ‘standard lifetime allowance’ for the tax year or a multiple figure when 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 if the ‘event’ giving rise to the charge was a lump sum payment or not.

LTA

Lifetime allowance

M

Member

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

N

Normal minimum pension age

Age 55 on from April 6, 2010

Drawing pension benefits before this age except under special circumstances gives rise to an unauthorised withdrawal charge.

O

Offshore

Somewhere other than the country where you live and pay taxes

Offshore financial centre

Countries that transact financial business with non-residents

Overseas pension scheme

A pension scheme is an overseas pension scheme if it is not a registered pension scheme but is established outside the UK and satisfies the requirements for recognition as a pension scheme

Q

QNUPS

Qualifying Non–UK Pensions

QROPS

Qualifying Recognised Overseas Pensions

Qualifying Non–UK Pensions

These were launched in  2010 to correct an ambiguity in earlier offshore pension laws that did not exempt a pension fund from IHT on the death of a pension member if no lump sum or other payment was drawn down from the retirement fund. QNUPS do not have the same reporting restrictions as QROPS, but are otherwise similar.

Qualifying Recognised Overseas Pensions

An overseas pension scheme is a qualifying overseas pension scheme if it satisfies certain HMRC requirements, including the reporting of payments to the member to HMRC for at least 10 years. All QROPS are QNUPS.

R

Recognised transfer

A  transfer representing a member’s accrued rights under a registered pension scheme to another registered pension scheme or a QROPS.

S

Standard lifetime allowance

The cap on the amount of tax-relieved savings that someone can accumulate over their lifetime without taking any special factors into account that may increase or decrease the tax-relieved ceiling.

For the year 2006-07, this amount was set at £1,500,000 and changed in subsequent years:

2007-08: £1,600,000

2008-09: £1,650,000

2009-10: £1,750,000

2010-11: £1,800,000

2011-12: £1,800,000

For 2012-13 and later, the standard lifetime allowance is £1,500,000.

U

Unauthorised member payment

An unauthorised member payment is a payment by to a member or a former member of a pension scheme that is not an authorised member payment

Unauthorised payments charge

Tax due on unauthorised member payments. The rate is 40% of the unauthorised payment.

Unauthorised payments surcharge

Tax due in addition to the unauthorised payments charge if total unauthorised payments go over a set limit in a set period of time of no more than 12 months.

The surcharge rate is 15% of the unauthorised payments.

Uncrystallised funds

Funds held in respect of the member under a money purchase arrangement that are not used to provide that member with a benefit under the scheme, so have not ‘crystallised’.