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