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Qualifying
service
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
benefits.
Recognised
professional bodies
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
main activity.
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
body (DPB).
Reckonable
service
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
age.
Reduction
in yield
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
voluntary (FSAVC)
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
the pension
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
in yield.
Refund
of contributions
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.
Regular
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.
The contributions made cannot exceed unused tax relief for the
current year based on net
relevant earnings (NRE) unless the individual is using carry
back relief to the previous tax year, where a single contribution
is the most appropriate method to absorb unused tax relief from
that year. Since 6 April 2001 only the RAP can use carry
forward relief using a single contribution to absorb tax
relief for the previous six years.
Regulated
Activities Order
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
prohibition.
Regulated
activity
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.
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If you do not agree to be bound by them, you should not use the sharingpensions.co.uk
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or any other financial or legal matter you should seek professional
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