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Glossary of Terms

Scheme administrator

This is the entity (typically a firm) who administers the SIPP or SSAS and has certain responsibilities under the Finance Act 2004.  This party is often referred to as the operator. Whilst this may vary from firm to firm, the duties they may carry out include dealing with scheme paperwork, completing HMRC returns, processing contributions and scheme investments, ensuring the scheme meets various regulatory requirements and paying benefits. Often the terms of business and/or the fee schedule will confirm what activities the administrator will carry out and the fee charged for these activities.

Annual allowance

This is the maximum amount that can be contributed to all pension input periods ending in any one tax year. The allowance for the tax year 2013/14 is £50,000 (reducing to £40,000 from the tax year 2014/15) although this can be increased by carrying forward any unused annual allowance from the previous three tax years. Any amount contributed over this is subject to a tax charge.

Benefit crystallisation event

Certain points in the lifecycle of a pension scheme where the accrued benefits, which in the case of a SIPP or SSAS is generally the fund value, is 'tested' against the lifetime allowance. Examples include taking benefits from scheme (other than ongoing income drawdown payments), certain lump sum payments, reaching the age of 75 and transferring the benefits to an overseas pension.

Connected party

This is defined by the section 993 Income Tax Act 2007 (although much of HMRC's Registered Pension Schemes Manual still refers to section 839 of the Income & Corporation Taxes Act 1988) and lists those who may be a connected party to the scheme member. Certain HMRC pension rules often refer to either restrictions in dealing with connected parties (i.e. loans cannot be made from a SIPP to a connected party) or where permitted transactions do take place between connected parties, it must be at fair market value. The categories of connected parties include spouses, civil partners, relatives and business associates.

Finance Act 2004

The act which reformed pensions legislation which resulted in significant new rules applying to pensions from April 2006.

Financial Conduct Authority (FCA)

The regulatory body responsible for regulating much of the financial services activities carried out in the UK. This includes SIPP operators and financial advisers.

Lifetime allowance

This is the amount to which it is possible to build one's overall pension fund to. If the amount is exceeded, tax charges will apply. For the tax year 2013/14 the allowance is £1.5 million reducing to £1.25 million from 6 April 2014.

Operator

This is the entity (typically a firm) with whom the pension member (or sponsoring employer) contracts and who provides and administers the SIPP or SSAS. Whilst this may vary from firm to firm, the duties they may carry out include dealing with scheme paperwork, completing HMRC returns, processing contributions and scheme investments, ensuring the scheme meets various regulatory requirements and paying benefits. Often the terms of business and/or the fee schedule will confirm what activities the operator will carry out and the fee charged for these activities.

Pension input period

The period over which the contributions paid under a scheme is measured. A pension input period does not have to be the same as the tax year. The pension input period is unique to each arrangement and hence an individual can have more than one pension input period - eg: different pension input period for each scheme that they are a member of or different pension input periods for each arrangement they have under the same registered pension scheme.

A pension input period normally runs for a year but can be less than a year. The first pension input period for an arrangement cannot be longer than 12 months but a subsequent pension input period for that arrangement can be longer than 12 months. However, only one pension input period for the same arrangement can end in the same tax year.