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- A Day. On 6 April 2006 HMRC introduced a single tax regime for all UK pension schemes. This is also often referred to as Simplification.
- Adviser. An FSA-regulated Independent Financial Adviser (IFA) can be referred to more simply as an adviser. We are not an adviser and we cannot offer you advice about your pension.
- Alternative investment market (AIM). AIM is a UK stockmarket mainly for smaller companies. Investing in AIM-listed shares is generally high risk. This is because you may not be able to sell large shareholdings at the price quoted on AIM. (The price may fall as buyers realise that you are selling.) Also, small companies are less likely to be able to cope with bad news like a temporary drop in sales. Because of this, the value of their shares may drop quickly.
- Annual allowance. This is the maximum amount of new money eligible for tax relief in a single tax year. The annual allowance is set by HMT.
- Annuity. An annuity is an income paid for the rest of your life. You can buy annuities from an insurance company. An annuity can be a fixed amount, or it can increase by a fixed amount or in line with inflation. Your husband, wife or other dependants can continue to receive the annuity after you die. The annuity may also have a guarantee period such as five or 10 years. See also income withdrawal.
- Basic funds. These are simple funds that might be suitable for any part of your assets that you do not plan to manage on a day-to-day basis. We cannot offer you advice on whether or not these funds are suitable for you. You need to agree your investment strategy with your adviser.
- Beneficiary. An individual who is eligible to receive benefits from the SIPP.
- Benefit Crystallisation Event. This is when benefits become payable and are tested against the lifetime allowance. Examples of benefit crystallisation events are drawing pension commencement lump sum and moving into drawdown.
- Benefits in kind. When your employer gives you something valuable (for example, a company car) you may be treated for tax purposes as if you have received cash. If this happens, the item given to you is referred to as a benefit in kind and you need to pay income tax on it. Employer contributions to a SIPP are not treated as benefits in kind.
- Capped Drawdown. This form of income withdrawal is subject to an annual maximum amount of income that can be taken, which is reviewed every three years (and every year after age 75).
- Connected Party. Examples of a connected party would be: A SIPP member or spouse or relative of a SIPP member; A partnership where one of the partners is a SIPP member or a relative of the SIPP member ; A company controlled by either of the previous parties.
- Contracted-out. Nearly everyone can expect a Basic State Pension when they reach State Pension age. If you are employed and earn above a certain amount, you will also pay National Insurance Contributions. You earn an additional amount of pension, known as the State Second Pension. This used to be called the State Earnings Related Pension Scheme (SERPS). The benefits from the scheme are based on the earnings on which you have paid National Insurance Contributions. However, instead of the Government paying the additional pension, you can ‘contract out’ and ask the Government to pay a contribution to a personal pension plan instead. This is called a rebate. This money is invested and provides you with a pension instead of the State Second Pension. The invested money is called ‘Protected Rights’. You cannot apply for rebates to be paid into your SIPP but you can transfer the rebates you have built up in another pension to be transferred to your SIPP. Company Pension Schemes can also contract out and, in the same way, you can build up contracted-out benefits in your Company Pension Scheme. These can also be transferred to your SIPP.
- Contracts for difference. These are high-risk investments. They consist of an agreement between a seller and a buyer. The seller agrees to pay the buyer the difference between the current value of an asset and its value at a future date. If the asset's value falls, the buyer pays the difference to the seller. Contracts for difference allow you to bet on movements in share prices without owning the shares themselves. Contracts for difference can sometimes be suitable investments for SIPPs for investors who are able to take high risks.
- Drawdown. This is another term for income withdrawal.
- Equities. These are the same as shares in a company.
- Expression of wish. This is notification by a SIPP member detailing how they wish their death benefits to be paid.
- Fixed Protection. If you have this form of protection, the normal limit on your pension fund size will be replaced by £1,800,000, if greater. The normal limit on your pension fund size is £1,500,000 in the tax year 2012/2013.
- Flexible Drawdown. This is a form of income withdrawal which is not subject to minimum or maximum limits. To be eligible for this, you must meet the minimum income requirement.
- Fund supermarket. This is an online shop where you can buy and sell investments including funds, unit trusts and OEICs. We have chosen the fund supermarket Fundsdirect for our SIPP. You can choose to use Fundsdirect through our SIPP if you want to.
- Futures. These are contracts under which the seller must sell, and the buyer must buy, an investment at a fixed price at a fixed future date. Futures carry a high risk since the market price in the future may be very different to the fixed price under the contract. Futures can produce very high profits or losses. As a simple example, I pay you £1,000 to buy your house for £100,000 in a year’s time. (Under a futures contract, I have to buy it then, and you have to sell.) If your house is worth £150,000 by then, my £1,000 has become worth £50,000. If your house is worth £80,000 by then, my £1,000 has turned into a loss of £20,000. Futures are not for the faint-hearted!
- Government Actuaries Department (GAD). This is the Government department that provides actuarial advice and guidance to the Government.
- Gilts. A Gilt is a UK Government liability in sterling, issued by HM Treasury and listed on the London Stock Exchange.
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- Hedge funds. These are private investment firms who usually invest in high-risk investments. There are usually fewer than 100 individual investors in a hedge fund. This allows the fund to avoid many of the regulations that apply to other pooled investment schemes (for example, OEICs).
- Her Majesty’s Revenue & Customs (HMRC). HMRC is a Government department. It decides how much tax relief is available under SIPPs. It also decides what rules apply to the benefits you can take.
- Her Majesty’s Treasury (HMT). HMT is a Government department. It sets the level of annual allowance.
- Illiquid assets. These are assets that can be difficult or slow to convert to cash. Property is a good example of an illiquid asset. Unquoted shares can also be illiquid because there may be only a small number of possible buyers.
- Income withdrawal. This means using some of your SIPP to provide an income while leaving the rest of your fund untouched. The amount you can take will depend on which of the two types of drawdown is used – Capped drawdown or Flexible drawdown.
- In specie contribution. This is a way of moving existing assets into a SIPP without selling the assets. The advantage of an in specie contribution is that it avoids the costs associated with selling an asset. After the in specie contribution, the asset can stay in the SIPP.
- Investment return. The difference between the money that you originally invested and the total amount that you have received from that investment at the time when you cash it in. Investment returns can either be positive or negative (in other words, a profit or a loss).
- Investment trust. An investment trust is a form of pooled investment which has a limited number of shares. Investment trusts may specialise in particular types of investment (for example, UK shares).
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Minimum Income Requirement. To satisfy this requirement you must have a minimum pension income. For the 2011 / 2012 tax year this is £20,000. This income must come from a social security pension, a pension scheme (but subject to pension regulations and not from Capped Drawdown) and / or an annuity purchased by a pension scheme.
Money Purchase Scheme. This is a pension scheme where your money is invested and the size of your fund is determined by how those investments perform. A SIPP is a Money Purchase Scheme.
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- Open-ended investment company (OEIC). An OEIC is a form of pooled investment, similar to an investment trust. OEICs are companies that issue shares on the London Stock Exchange. They then use the money raised from shareholders to invest in other companies. If an OEIC does well, it can issue more shares. This is why OEICs are referred to as being open-ended.
- Options. These are similar to futures. The difference is that an options contract creates a right to buy or sell, rather than making it compulsory.
- Pension Commencement Lump Sum (PCLS). PCLS is the tax free lump sum that can be paid to a member when their benefits under the SIPP are crystallised. Where Protection does not apply typically this will be 25% of the member’s fund.
- Pension input periods. These are part of the technical method used to limit contributions to a SIPP.
- Pension Simplification. See “A Day”.
- Protection. Some SIPP members may have benefits valued in excess of the Life Time Allowance or a pension commencement lump sum of greater than 25% and they have safeguarded them against a tax charge. That safeguarding is referred to as protection.
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- Quoted shares. These are shares in a limited company where there is a share price published on a recognised stock exchange.
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- Self invested personal pension. See SIPP.
- Shares. If you have a share in a company, it means you receive dividends (part of the profits paid to shareholders) from the company and a portion of any proceeds if the company is sold. You can buy and sell quoted shares on a recognised stock exchange. Unquoted shares are owned by a limited number of people and you are only likely to be able to buy and sell with those people. Shares are more risky in the short-term than some other assets because you only receive whatever is left from a company after it has paid its debts and met other commitments (for example, salaries). If a company does well, its shares can shoot up in value. If a company does badly, its shares can become worthless.
- SIPP. A SIPP is a form of personal pension. SIPPs can include a very wide range of investments, can accept transfers including in specie contributions, and can be used for income withdrawal. Some SIPPs are fully flexible pension arrangements, while other SIPPs are not so flexible. It is important to choose a SIPP that meets your needs.
- Simplification. See “A Day”.
- SSAS. A SSAS is a form of occupational pension scheme. SSASs can include a very wide range of investments, can accept transfers including in specie contributions, and can be used for income withdrawal. Some SSASs are fully flexible pension arrangements, while other SSASs are not so flexible. It is important to choose a SSAS that meets your needs.
- Traded endowment policies. Endowment policies which have been sold to and traded by regulated brokers.
- Transitional arrangements. These are special rules that apply to people who already had large pension funds on 5 April 2006. Transitional arrangements may reduce or remove the extra tax charge for large funds. You have to register with HMRC to benefit from transitional arrangements.
- Trust. A trust is a set of assets and it is governed by rules set out in a document called a trust deed. Trustees make sure that the trust is run in line with those rules.
- Trustee. A trustee is an individual or a company with responsibilities to make sure that a trust is run in line with its rules. Our SIPP is governed by a trust. Xafinity Pension Trustees Ltd is the trustee for the trust.
- UK Relevant earnings. This is an earnings limit used to set the maximum contribution that you can make and get tax relief for. (Your employer may be able to make a larger contribution than this.) Relevant UK earnings are broadly the same as your taxed earnings, but they do not include dividends or bank interest.
- Unquoted shares. These are shares that do not have a price quoted on a recognised stock exchange. They are not usually suitable investments for SIPPs. They are often held by only a few individuals (for example, the founders of a company).
- Venture capital trust (VCT). A VCT is a form of pooled investment specialising in companies that have recently been set up (‘start-up’ companies).
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Xafinity SIPP Services is authorised and regulated by the Financial Services Authority