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   Permitted activity 13    Personal pension    PIA
   Phased retirement    Post divorce contributions    PPA 97
   Polarisation    Personal equity plans    PEPs

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Permitted activity 13
Within the Financial Services Authority (FSA), formally the Personal Investment Authority (PIA), Handbook of Rules and Guidance permitted activity 13 recognises that any intermediary such as an independent financial adviser (IFA) dealing with an external transfer from a defined benefits occupational pension scheme must hold a professional qualification being G60 Pensions or equivalent.

The PIA has confirmed that this applies even when a judge makes a pension sharing order but the occupational scheme does not allow for dual membership, effectively imposing an external transfer with no advice given.


Personal equity plans
Many investors have over time built-up a significant amount of money in Personal Equity Plans (PEP). Although contributions to PEPs ceased on 5 April 1999, by this time some £92 billion had been invested before PEPs were replaced by individual savings accounts (ISAs).

Unlike a TESSA, there are no qualifying periods for PEPs in order to benefit from the tax advantages. However, as PEPs are equity based investors should regard a PEP as a long term investment.

On divorce, judicial separation or nullity of marriage it may not be desirable to encash PEPs as the fund value will depend on the performance of the underlying assets. Therefore where the court order requires a portion of the PEP to be transferred to the former spouse, the provider could remove the PEP "wrapper" from this portion of the investment.

This means that the PEP member can retain their part of the investment unaffected and the former spouse can transfer this portion with all capital gains and income up to this point being free from tax.


Personal Investment Authority
The Personal Investment Authority (PIA) was the self-regulating organisation (SRO) that regulated about 4,300 firms, including independent financial advisers (IFA) that advise private investors in relation to investment products.

The PIA governed the sale of life assurance, personal pensions, friendly society investments, unit trusts, investment trust savings schemes and financial services offered to members of the public. The PIA responsibilities have subsequently been incorporated within the Financial Services Authority (FSA) fully as of midnight on the 30 November 2001.


Personal pension
The personal pension replaced deferred annuities and Section 226 policies from 1 July 1988 being approved under Chapter IV of part XIV of the Income and Corporation Taxes Act 1988 (ICTA 88). A personal pension is the most popular type of private pension scheme taken out by an individual.

An employers pension scheme group personal pension (GPP) is now more common mainly due to their simplicity and low administration cost of operation. Since the 6 April 2001, stakeholder pensions have been available and can be used where a personal pension is not appropriate, for example, when the individual has no taxable earnings.

All personal pensions are contributory schemes and can be taken out by the self employed or employed as well as allowing an employer to make contributions directly to the plan. However, an individual cannot contribute to a personal pension where they are already making payments to an occupational pension scheme such as final salary pension or additional voluntary contribution (AVC) scheme as concurrent membership is not permitted.

The retirement age can be selected between 50 to 75 and retirement benefits taken as a pension income provided by a compulsory purchase annuity and allowing the scheme member a commutation to a tax free lump sum of 25.0% of the pension fund value. The member could defer the purchase of an annuity by opting for a pension drawdown but at age 75, must finally purchase an annuity.

At retirement the member will use the fund to buy an annuity and 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 pension annuities quote offering guaranteed rates.


Phased retirement
Also known as staggered vesting, phased retirement allows the member to defer drawing all of their pension benefits and spreading them over time by using segmentation, up to the age of 75. As each segment is taken 75.0% must be used to buy a compulsory purchase annuity as well as any balance of the fund by the age of 75. The main advantage is that;

It allows flexible pension planning;
   
Allows the phasing in of pension income with part time work;
   
A pension annuity can be taken later by the individual and therefore benefit from possibly higher annuity rates as the member becomes older;
   
Offers the potential for investment growth in the remaining fund.

The disadvantage is that the 25.0% tax free lump sum will be phased over time with each segment withdrawn, interest rates and hence annuity rates could fall further and investment returns could be poor resulting in a smaller fund value. When phasing in pension income the individual can use part of the fund to buy an annuity at various times and has the option to use an open market option to search for the highest pension annuities. 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.

Apart from the conventional annuity, the annuitant could purchase a with profits annuity thereby retaining some exposure to equities in the future even though they have taken an annuity income.


Polarisation
The Financial Services Act 1986 introduced polarisation rules that had a significant effect in the way intermediaries represented their clients. As a result there are two types of adviser:
   
Those that sell the products of one company and are known as tied agents or company representatives;
   
Those that are known as independent financial advisers (IFA) that will review all the products available on the market and provide unbiased advice.
   
Within the Financial Services and Markets Act 2000 (FSMA) the Financial Services Authority (FSA) is required to pursue four statutory objectives and in the context of polarisation the most relevant are consumer protection and public awareness.

The Director General of the Office of Fair Trading (OFT) has a duty under Section 122 of the Financial Services Act 1986 to keep under review the rules, guidance and other regulatory provisions of the regulatory bodies. Their review reported that polarisation rules significantly restrict or distort competition by limiting innovation in the retail sale of packaged financial products. On 8 November 2000 the FSA and the Treasury announced steps to liberalise the polarisation rules to allow consumers greater choice.


Policyholder Protection Act 1997
The original protection for a policyholder was introduced in the Policyholder Protection Act 1975 (PPA 75) where the policyholder protection board (PPB) acts as an industry funded safety net when a UK insurer becomes insolvent.

The PPA 1975 applies in relation to policyholders and others who have been or may be prejudiced as a consequent of an authorised insurance companies inability to carry on business in the United Kingdom and meet certain of their liabilities under policies issued or securities given by them such as an insured personal pension or with profits annuity.

For long term insurance the PPB must initially seek to transfer the ongoing policies of the insolvent insurer to another company or arrange the issue by another insurer of substitute policies and ensure the policyholder will receive 90% of the future benefits. Alternatively, the PPB must pay 90% of the fund value of the policy for the purpose of the liquidation.

Under the Policyholder Protection Act 1997 (PPA 97) a person is eligible for compensation as follows; "a person is a qualifying person if he is a security holder in respect of a security given by the company who is eligible for protection under this section". The provision of the PPA 1997 has been incorporated in the Financial Services Authority (FSA) Handbook of Rules and Guidance for the Financial Ombudsman Service (FOS) introduced from midnight on 30 November 2001.


Post divorce contributions
Once the court has granted the decree absolute following the decree nisi, the partners marriage comes to an end. If a pension sharing order is made against the members pension rights and the former spouse receives the pension credit as an internal transfer or external transfer, a clean break is achieved with no further linking of financial matters with the former spouse. A clean break will also occur with offsetting.

A former spouse can then continue with post divorce contributions to their existing pension arrangements without further claim from the former spouse. In the case of a pension sharing order there will be no opportunity for a variation after the granting of the decree absolute. However, for an earmarking order on a pension arrangement such as an occupational pension scheme or a personal pension, any post divorce contributions will continue to add to the retirement benefits at retirement age.

This will result in more accrued benefits in a defined benefits scheme such as extra years in a final salary pension, or a larger pension fund value in a defined contribution scheme such as stakeholder pensions. As the post divorce contributions are also subject to an earmarking order, the scheme member may chose to stop payments to this scheme and start a new one that will not be subject to the earmarking penalty.
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  55 £4,217  
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  70 £5,973  
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