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   Q - R
   Qualifying service    Recognised professional bodies    Reduction in yield
   Reckonable service    Regular and single contributions    Regulated activity
   Refund of contributions    Regulated Activities Order    

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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.

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 a stakeholder 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.

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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