What if My Situation Changes?

Pension Payments during Family Leave

Whilst in work, periods of family leave such as maternity, paternity, adoption and shared parental leave can lead to some confusion amongst employers as to what they need to pay and deduct, as pension contributions.

The general principle whilst an employee is on family leave is that the terms & conditions of employment should continue as normal (that is, the same as if they weren't on leave) with the exception of 'remuneration' which is defined as wages or salary.

This means that employer pension contributions should be paid based upon pensionable earnings applicable before the commencement of the family leave whilst employee contributions are based upon the individual's actual earnings during the leave.

This results in slightly different outcomes for members (and employers) depending upon whether pension contributions are being paid on a contributory or salary sacrifice basis.

If the employee is a member of a scheme on a salary sacrifice basis then the same level of contributions should be paid for the period of paid leave, whilst a contributory member could potentially contribute less as their payments may reduce if the pay received during the family leave period is less than the pre-leave pensionable earnings.

This principle has been cast into doubt by the decision of the employment Appeal Tribunal in the case of Peninsula Business Services Ltd v Donaldson, however the generally accepted view is that the salary sacrificed for a pension contribution does not constitute remuneration once it is sacrificed.

These guidelines are applicable to periods of paid or unpaid statutory absences (such as Ordinary Maternity Leave, 'OML' or paid additional maternity leave) however during a period of unpaid leave taken after family leave entitlement both the employer & the employee may cease contributing unless the contract of employment states otherwise.

Pensions and Death Benefits

The tax treatment of benefits and the availability of pension for beneficiaries is dependent upon the type of pension in place and actions that have already been taken. Usually, the plan holder will have completed a form nominating a beneficiary or beneficiaries to receive any benefits due in the event of death. Forms are often referred to as 'Expression of Wish' or 'Nomination of Beneficiary'.

This form is not legally binding, so benefits are distributed under the scheme or pension providers discretionary powers. This means that, from HMRC's perspective, the funds are outside the control of the pension holder meaning they are normally considered to be outside the estate for inheritance tax purposes.

Personal and Workplace Pension Schemes through a Pension Provider

These schemes are personal contracts between the plan holder and the pension provider and where no benefits have been accessed they are known as 'Uncrystallised'.

Upon confirmation of a death the pension provider will review its records to ascertain whether the plan holder 'nominated' any beneficiaries to receive the benefits from the scheme. This pension provider will then usually pay the value of the benefits to the nominated beneficiaries in the form of a lump sum payment, although beneficiaries may request to use the fund to purchase an annuity to provide a regular income.

Flexi-Access Drawdown Pension Policies

Where a pension has been moved into a drawdown arrangement and benefits have been accessed either as income or a lump sum, these funds are known as 'Crystallised benefits'. In the event of death, the value of the fund is passed to the nominated beneficiary(s) who can then choose to take the value of the fund as a lump sum or take regular or ad hoc income from the fund. It should be noted that the nominees do not have to have reached the statutory minimum pension age to take these benefits.

Annuities

Where an annuity has been purchased and is in payment, the payments being received will cease in the event of death unless a guarantee period has been included. If a spouse's or dependent's pension was included at the point the annuity was purchased this will commence and will continue to be paid in accordance with the terms of the contract.

Retiring due to illness

If you're ill, you may find that you must retire earlier than you expected. Dealing with ill health and retiring at the same time can be difficult but we can help you through it.

Most people think they will get less for their money if they are ill but with annuities the opposite is often true. If you or your dependent have or have had such medical conditions as a stroke, heart disease, cancer or diabetes, you may be able to get a higher income as you or your dependent's life expectancy may be shorter. Not all forms of these conditions will qualify you for enhanced benefits. smoking, height and weight.

Retiring due to redundancy

You never know what's around the corner, so it is possible that your carefully laid plans about when you want to retire could be derailed by something like redundancy. If you're over 55 when you're made redundant, you may have the option of retiring instead of looking for a new job.

Working in retirement

Many people are choosing to work longer if their health allows, but often they want to work fewer hours. Phased retirement can be used to supplement earnings from part-time employment. Instead of, for example, buying an annuity in a single transaction, you spread the purchase over several years. It can be tax-efficient, especially if you aim to keep any taxable income below the higher-rate threshold, which for 2020/21 is £50,000.

The over-65s clock up 104 million hours of caring and volunteer work each week - amounting to £656.2 million at the national minimum wage*. Your unique skills and experiences are invaluable to your community. You can give so much by volunteering your time and skills. But there are benefits for you as well. A previous study found older people who volunteer are happier, less socially isolated, less depressed, and have a better quality of life than those who do not volunteer**.

Volunteering can get people directly involved in their community in new and challenging ways. You might be embarking on brand-new experiences and making new friends along the way. Many volunteers feel that volunteering helps make the transition into retirement easier. It could be fun too, giving you enjoyment and personal satisfaction while practically supporting worthwhile causes that matter to you.

Volunteering opportunities

From being a trustee, to a mentor, providing administrative or financial support to a charity, befriending an isolated elderly person, fundraising, reading with primary school children, driving people with disabilities to day trips, carrying out conservation work in a nature reserve - the list is endless.

Choosing the right opportunity for you is essential. You will need to consider how much time you can spare and whether you want a regular commitment or not. Many roles can be flexible and fit in with your other commitments. Think about what you want to get out of it. Do you want to meet new people, to develop new skills, do something completely different from your career, or follow a dream? Is there a cause or issue in which you want to get involved? For example, do you want to work with young people, improve the environment or help homeless people?

But don't just think about it - try some opportunities and see what suits you best.

• *Aviva, Real Retirement Report, Dec 2012.
• **The impact of volunteering on well-being in later life, WRVS, 2012.

The content of this article does not constitute individual financial advice.