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   Fluctuating emoluments    First appointment    Fixed rate escalation
   FSMA 2000    Fund value    FURBs

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Financial Services and Markets Act 2000
Receiving Royal Assent on 14 June 2000, the Financial Services and Markets Act 2000 (FSMA) was brought into force from midnight on the 30 November 2000. The effect of this Act has been to constitute the Financial Services Authority (FSA) as a super-regulator, with powers to regulate insurance, investment business and banking.

It abolishes the Self-Regulating Organisations (SRO) and replaces the existing two-tier regulatory regime for investment business established under the Financial Services Act 1986, with an integrated regime and a single regulator being the FSA. The FSMA will at the first stage reproduce and update the existing rule book but the second stage will introduce new features.

The FSMA will create the market abuse regime that will apply to members of the public as well as regulated individuals:

The FSMA will establish the Financial Services and Markets Tribunal;
The FSMA will create a financial promotion regime prohibiting persons or an exempt person from communicating financial activities;
The FSMA will create a single compensation and ombudsman scheme called the Financial Ombudsman Service (FOS);
The FSMA will appoint individuals within regulated firms to be registered with the FSA as approved persons.

First appointment
For a couple on divorce, judicial separation or nullity of marriage the court may be required to settle any disputes of the matrimonial assets and this is known as ancillary relief. Either of the parties can apply for a financial order although they may need to take professional advice from a solicitor before doing so.

Firstly the applicant must complete Form A this being the notice of application to the court where the divorce, judicial separation or nullity of marriage took place together with Form H estimating the applicants costs as this will help the judge in making any cost orders. The court will then notify the parties of the first appointment that must be between 12 and 16 weeks after the submission date of Form A, allowing time to serve and receive copies from the other party as shown in the step-by-step guide. A financial statement on Form E must be served on the other party and to the court no later than 35 days before the first appointment.

At the first appointment the judge will review the case and require further information such as expert evidence for a valuation of complex pension arrangements such as an employers final salary pension or public service scheme or if the parties agree, to make a final order for ancillary relief. If there is no agreement the case will progress to a financial dispute resolution (FDR) appointment.

Fixed rate escalation
At retirement an individual with a pension fund or a lump sum can buy either a pension annuity or purchase life annuity. They can select the income to be paid with a fixed rate of escalation over the life of the annuitant. Although any percentage can be selected, the usual rates are 3% or 5% per year.

In order for the insurance company to be in a position to pay the the annuitant, it must purchase Sterling fixed interest securities such as UK Government securities or gilts. The amount of income that can be paid by an annuity with a pension fund depends on the yields for long-term gilts and in particular gilts with a redemption periods of 15 years or more.

Alternatively, the individual may opt for RPI escalation so the income will be inflation proofed. The effect of inflation over time can be significant reducing the value of the income from annuities in real terms, thereby reducing the annuitants standard of living if they only have a level annuity. At retirement the individual using the fund to buy pension annuities has the option to consider an open market option to search for the highest annuity rates. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised annuity quote offering guaranteed rates.

The annuitant could select a With Profits annuity if they are prepared to accept some risk, rather than a conventional pension annuity with a fixed rate of escalation. By selecting an Anticipated Bonus Rate (ABR) of only 1.0%, the initial income would be higher and there would be potential for future growth if actual bonus rates declared were higher.

For a family with an elderly relative that now requires 24 hour care after suffering an illness, the escalating long term care costs for a residential or nursing home can be funded with an immediate needs annuity that includes a fixed rate of escalation.

Fluctuating emoluments
In addition to an employees basic salary, fluctuating emoluments could represent other taxable pay such as bonuses, profit related pay and benefits in kind. Most employers pension schemes such as a final salary pension will base a members pension rights at retirement age only on the basic salary.

However, pensionable earnings will include fluctuating emoluments and the scheme member can absorb any shortfall by contributing to an additional voluntary contribution (AVC) scheme offered by the employer or a free standing additional contribution (FSAVC) scheme through a life assurance company. These payments will be used to create a pension fund value and at retirement age a pension income would be payable based on investment returns, contributions made and annuity rates at the time. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities quote offering guaranteed rates.

Free standing additional voluntary contribution
A pension plan where the scheme member can make extra contributions that are separate from the occupational pension scheme is called a free standing additional voluntary contribution (FSAVC).

The FSAVC contributions are free standing in that they will be made to a life assurance company through a defined contribution plan. The maximum Annual Allowance will increase in each subsequent year from the 2009/10 tax year of £245,000. The annual allowance ceiling represents the combined amount that an employee and their employer can contribute to pensions during the year without a tax penalty.

Previous to A-Day the members total contributions to all schemes, including an FSAVC, was limited to 15.0% of taxable earning and a scheme member of a free standing additional contribution scheme with contributions of more than £2,400 gross per annum would have required a headroom check. At this time there was no opportunity for the scheme member to commute part of the fund value to a tax free lump sum.

The retirement income from an FSAVC is based on the contributions made by the member, investment return, annuity rates at that time and the pension fund value can be used to buy an annuity. The individual has the option to use an open market option to search for the highest pension annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised annuity quote offering guaranteed rates.

Fund value
This is a method of calculating the value of the member's share of a final salary pension scheme. On winding up the scheme, its value can be determined by an actuary applying an actuarial calculation from which an individual member's entitlement can be ascertained. The scheme may be in surplus or deficit and this will impact the value of the member's benefits and hence spouses entitlement.

Funded unapproved retirement benefits scheme
For directors and senior employees with earnings in excess of the earnings cap, a funded unapproved retirement benefit scheme (FURBs) will allow members to top-up their existing arrangements. However, FURBs have very different taxation implications than exempt approved schemes.

Although the employer contributions are allowable as a business expense, they are fully taxable to the member as a benefit in kind. National Insurance (NI) contributions are payable and no tax relief is available on any member contributions. There is no ceiling to the level of funding and at retirement, commutation is available for the whole pension fund as a tax free lump sum.

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