The qualifying service for an unfunded public
service scheme will determine a scheme members eligibility
to pension benefits. The actual number of years of service usually
represents the qualifying service. This can be enhanced with
a pension transfer from a previous scheme and extra service
credits or added
years will also count towards qualifying service for pension
Under the Financial Services Act 1986, recognised professional
bodies (RPB) are permitted to authorise its members to carry
out investment business where it does not form part of the members
Under this legislation there are some 15,000 professional firms
including solicitors, accountants and actuaries that are regulated
for investment business by their respective RPB. About 2,000
of the firms carry on mainstream investment business including
direct advice on investments products, discretionary portfolio
management and corporate finance services. From N2 the Financial
Services Authority (FSA) directly regulates the activities
of this type of firm.
The other 13,000 carry on investment business that is subordinate
to and derived from their professional services and from N2 are treated as exempt professional firms, able to carry on exempt
regulated activities under the supervision and regulation of
a designated professional
For an unfunded public service scheme the reckonable service
will add to a scheme members pension at retirement age. This
will include any part-time work, pension
transfers from a previous scheme and added years purchased
to enhance benefits at retirement
For a defined contribution scheme, such as a stakeholder pensions,
additional voluntary contribution (AVC)
scheme or group
personal pension (GPP)the accrued pension fund value will
have an investment return but subject to a reduction in yield
(RIY). This RIY will reduce the return to the pension scheme
member and represents the cost of fund management and administration
of the pension policy.
The cost of RIY will vary from say 0.4% per annum for a large occupational
money purchase scheme such as an AVC, up to 1.0% per annum
for a private pension scheme such as free standing additional
scheme. This difference represents the economies of scale for
a larger scheme. Reduction in yield does not apply, from the
members point of view, in defined benefit schemes such as final
salary or public service schemes as retirement benefits are
based on pensionable
earnings, not a fund value.
The RIY is important as it reduces investment return and hence
fund value at retirement age. This ultimately reduces the
pension income and tax
free lump sum available to the member. The longer a member
has to retirement age the bigger will be the effect of reduction
A refund of pension contributions is available for members with
less than 2 years service in a final
salary pension. Tax and a contribution to purchase membership
of the state pension scheme will be deducted from the refund
before payment. Scheme members with over 2 years membership
of a final salary pension are not eligible for a refund.
and single contributions
For an employers pension scheme such as final salary pension
or a public service scheme the only option open to the scheme
member will be to make regular contributions.
Even if a member of a public service scheme purchased added
years, this would be calculated as a regular contribution to
retirement age. For private
pension schemes such as a personal pension, retirement annuity
policies (RAP) and stakeholder pensions the member can make
regular and single contributions.
Since 6 April 2006 Pension Simplification has replaced eight tax regimes and introduced two new controls. Firstly there is a Lifetime Allowance where the maximum amount of pension
savings that can benefit from tax relief and has been initially
set at £1.5 million for the 2006/07 tax year increasing to £1.8 million for the 2010/11 tax year. The other control is the Annual Allowance that limits the amount that can be contributed to a pension to £215,000 for the 2006/07 tax year rising to £255,000
by 2010/11 tax year.
If the scheme member exceeds the HM Revenue & Customs limit of £235,000
for the 2008/09 tax year, there will be an annual allowance
charge applied of 40% under self-assessment on any excess contribution. However, the rules allow an individual
to contribute either £3,600 per annum or 100% of their earnings in order to benefit from tax relief at their
marginal rate of tax.
Previous to A-Day the contributions to a personal pension were limited by Inland Revenue maximums,
depending on the age of the member, between 17.5% to 40.0% and
pension limited the contributions to £3,600 per annum
irrespective of age or pensionable earnings.
At retirement the individual can use a money purchase 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.
Schedule 2 of the Financial Services and Markets Act 2000 (FSMA)
contains a list of regulated activities, the definitive list
of regulated activities being contained in the Regulated Activities
Order (RAO) as specified by HM Treasury.
Within the Regulated Activities Order there will be a number
of exclusions and activities carried on within these terms will
not be regulated activity. Therefore exempt professional firms,
as with other firms that are not authorised, will be able to
carry on business within the terms of the exclusions without
breaching the general
Under the Financial Services and Markets Act 2000 (FSMA)
a professional firm wishing to provide mainstream financial
services will need to achieve authorisation from the Financial
Services Authority (FSA). Subsequent to authorisation the firm
would be regulated by the FSA and must comply with the FSA's
Handbook of Rules and Guidance.
If an exempt professional
firm conducts regulated activity that is outside the terms
of the section 327 conditions and therefore is not exempt regulated
activity, the firm could be in breach of the general prohibition
and committing a criminal offence.