Pensions Tax Simplification newsletter No 17

31 July 2006

Introduction
Registered Medical Practitioners
Payments to members aged under 55 when the Normal Minimum Pension Age changes in 2010
Permitted Transfers and Enhanced Protection
Assignments and Section 172
Legislation & Regulations
Pension Schemes Online
Accounting for Tax – a reminder
Accounting for Tax Returns: Accounting for the Lifetime Allowance charge
Transfers to Qualifying Recognised Overseas Pension Schemes (QROPS)
1SF reminder
Contact us

1. Introduction

Welcome to the seventeenth edition of the Newsletter. This includes a number of articles expanding on technical points that we have received various questions on, all of which will be incorporated in the Registered Pension Schemes Manual (RPSM) as soon as possible. Finance Act 06 has now received Royal Assent and a number of regulations have been laid. Links to these are included in this Newsletter. Finally there are some useful reminders that may be helpful to you particularly around the Accounting for Tax return.

Please pass this Newsletter on to anyone else in your organisation who you think may find it useful.

2. Registered Medical Practitioners

Before a Scheme Administrator of a registered pension scheme makes a benefit payment to a member, either on grounds of ill-health or serious ill-health, we require the Scheme Administrator to have received evidence of the member’s condition from a registered medical practitioner.

RPSM09104610 explains that a registered medical practitioner means a fully registered person within the meaning of the Medical Act 1983.

However, in circumstances where the member suffering such ill-health/serious ill-health is overseas, "evidence from a registered medical practitioner" may also be interpreted for the purposes of the rules in paragraph 1 of Schedule 28 and paragraph 4 of Schedule 29 FA 2004 as including a certificate from someone with equivalent overseas qualifications.

We would always expect that a member in the UK would need to have evidence from a UK registered medical practitioner.

3. Payments’ to members aged under 55 when the normal minimum pension age changes in 2010

All registered pension schemes must incorporate the new normal minimum pension age of 55 into their rules by 6 April 2010. It is for schemes/employers to decide how and when to make this change in a way that best suits their needs.

Where an individual takes benefits after achieving the normal minimum pension age of 50 before 6th April 2010, but they are not 55 by this date, they will still be regarded as receiving authorised payments after the normal minimum pension age changes to 55 by 6th April 2010.

We will be updating RPSM to make this clear in the next round of amendments.

4. Permitted transfers and enhanced protection

We have had a number of questions relating to what happens when an individual who has enhanced protection wants to transfer their pension rights, (which include protected rights), to a scheme that can not accept protected rights.

If the sums and assets or pension rights of an individual are transferred to form all or part of the assets of one or more other money purchase arrangements under a registered pension scheme or recognised overseas pension scheme, this is a permitted transfer for the purposes of enhanced protection.

Pension rights may therefore be transferred to an other money purchase arrangement under more than one scheme as long as the transfers are made at the same time. This would therefore allow a transfer to a scheme that cannot accept protected rights whilst at the same time transferring the protected rights element to another scheme that is contracted out and so can accept those rights.

5. Assignments and Section 172

Section 172 FA2004 treats an assignment of benefits or rights as an unauthorised payment. There has been concern in the industry that if a member alters the arrangements for determining who receives death benefits under a term assurance policy such alteration would be caught by this section as an assignment.

The normal method of transferring a policy with death benefits would be by assignment. If there is a transfer of death benefits to a trust, the most probable analysis therefore would be that this is by assignment. However, HMRC can confirm that the rights to death benefits under a term assurance policy are not within the scope of section 172(1)(b). It is possible for death benefits to be within the scope of section 172(1)(a) but only where there is an assignment by the member and the right to receive those benefits under the pension scheme is a prospective entitlement of a dependant of the member. (By definition death benefits cannot be an actual or prospective entitlement of the member, in respect of whose death the benefits are paid.)

By way of illustration, here are a number of examples of genuinely commercial transactions to which section 172 would not apply.

Death benefits go from being paid at discretion of Scheme Administrator to being paid at discretion of trustees

Discretionary beneficiaries have no rights to receive sums and assets, just a hope of receiving something if the trust is exercised in their favour. The beneficiary's hope of receiving death benefits at the discretion of the scheme administrator is not therefore a "prospective entitlement" to those rights. When assigned from a scheme in which the death benefits are paid at the Scheme Administrator's discretion to a discretionary trust, section 172 will not apply.

By contrast, if death benefits under the policy are to go to a named beneficiary who is a dependant, we consider such beneficiary would have a "prospective entitlement " and an assignment which overrode those rights would fall within s172.

Death benefits go from being payable to the member's estate to being paid at discretion of trustees

Individuals presumptively entitled to the member's estate have no right of property in it. They may have a "mere expectancy" but this does not amount to a "prospective entitlement." So again, while the transfer may be by way of assignment, what is assigned is less than a "prospective entitlement" and section 172 will not apply.

Discretionary trust to which rights to death benefits are transferred includes a lender or the member's company as a beneficiary

The same reasoning as above applies in relation to assignments to all discretionary trusts, whoever the potential beneficiaries under the trust are. Section 172 would not apply.

Assignment of rights to death benefits as security for a loan

Assuming the lender is not a dependant of the member, the application of section 172 would be determined by whether the rights to death benefits were "prospective entitlements" of a dependant of the member when they were assigned – see above for further guidance on that issue.

The lender taking a charge over the death benefits instead would not be an assignment of the rights to those death benefits so would not be caught by section 172.

6. Legislation & Regulations

Finance (No. 2) Bill (135) has received Royal Assent on the 19th July 2006 as the Finance Act 2006 and can be found on the Office of Public Sector Information web site.

Following this, on 21st July HMRC laid 7 pension tax simplification regulations, all of which come into force on 11th August 2006. As part of the ongoing consultation process, these were published in draft on the Pension Simplification website and/or reflect changes in response to representations made.

The one exception is "The Taxation of Pension Schemes (Consequential Amendments) (No. 2) Order 2006" which merely makes consequential amendments to other primary legislation to secure consistency with the provisions of Part 4 of the Finance Act 2004.

Further information on these regulations can be found by visiting the Pension schemes regulations pages.

The Registered Pensions Schemes (Extension of Migrant Member Relief) Regulations (S.I. 2006/1957)
The Pension Schemes (Taxable Property Provisions) Regulations 2006 (S.I. 2006/1958)
The Investment-regulated Pension Schemes (Exception of Tangible Moveable Property) Order 2006 (S.I. 2006/1959)
The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2006 (S.I. 2006/1960)
The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2006 (S.I. 2006/1961)
The Taxation of Pension Schemes (Transitional Provisions) (Amendment) Order 2006 (S.I. 2006/1962)
The Taxation of Pension Schemes (Consequential Amendments) (No. 2) Order 2006 (S.I. 2006/1963)

On 24th July, the following further regulation was laid which came into force on 25th July 2006. Further information and guidance on this regulation is available.

The Taxation of Pension Schemes (Transitional Provisions) (Amendment No. 2) Order 2006 (S.I. 2006/2004)

Copies of all laid regulations can be found by visiting the Statutory Instruments pages.

7. Pension Schemes Online

From 10th July, new forms and returns were available on our Pension Schemes Online service, enabling Accounting for Tax returns to be sent in online and for scheme details to be amended. Scheme Administrators can also use the online service to inform HMRC they have ceased as Scheme Administrator for a pension scheme.

8. Accounting for Tax return – a reminder

If you need to submit an Accounting for Tax (AFT) return for the quarter ending 30th June, this needs to be with HMRC by close on 14th August. Any tax due should reach Accounts Office by the same date. Further information on the AFT return and making payments to HMRC can be found in Newsletter no 15.

The quickest and most efficient way to submit the AFT return and payment is to ‘do it online’. This allows you to make the payment with the payment reference immediately following successful submission of the AFT return using Direct Payment and BillPay.

There are many benefits to using Pension Schemes Online

Sending or receiving information online is secure, convenient and quick
It is more reliable and efficient than using paper, and can cut down on storage space, post and administration
As information usually passes between computers without manual intervention, there is less chance of being misinterpreted, or of mistakes being made
Online validation means any errors will be highlighted before the return can be submitted, unlike paper where forms may have to be returned to the submitter for correction. This can result in delay and additional costs.

Users should be aware that when the Accounting for Tax return is submitted online, they will receive a successful submission acknowledgement including a payment reference number. If you do not receive this payment reference number, you should wait until the following day, when you will be able to view the payment reference number on the ‘Accounting for Tax for a scheme’ page. This is accessed by selecting the ‘Accounting for Tax’ link on the Welcome page and clicking on ‘all returns for scheme’ for the relevant scheme. The payment reference number will then be displayed.

If a Scheme Administrator chooses to submit a paper AFT return and they have not already pre-registered for Pension Schemes Online we recommend before submitting the AFT return, they they do it online by going to www.hmrc.gov.uk and selecting ‘pension schemes’ under ‘do it online’.
This will speed up the processing of the paper AFT return.

9. Accounting for Tax Returns: Accounting for the Lifetime Allowance charge

A number of pension industry representatives have recently raised issues with Audit and Pension Scheme Services (APSS) concerning the following situation;

a member has reached age 75, and
as a result, a benefit crystallisation event (BCE) has occurred,. This will be either a BCE 1 for uncrystallised rights in money purchase arrangements, a BCE 5 for prospective rights in defined benefit arrangements or a BCE 5A where the member has previously designated funds as available for the payment of an unsecured pension; and
the member is untraceable or the Scheme Administrator has been unable to contact the member to obtain details of the available lifetime allowance (but not including the situation where a member can be contacted but fails to respond)

In an instance such as this, the Scheme Administrator is entitled to make a commercial judgement based on the available information and the particular circumstances of the case as to whether a lifetime allowance charge should apply.

In the event of any subsequent discovery that a lifetime allowance charge was due but was not returned, APSS would need to be satisfied that the judgement exercised by the Scheme Administrator was appropriate in the circumstances in order to operate the good faith discharge of tax liability.

10. Transfers to Qualifying Recognised Overseas Pension Schemes (QROPS)

When a registered pension scheme is making a transfer to an overseas pension scheme you can check with Audit & Pension Schemes Services (APSS) whether the scheme to which it is proposed to make the transfer is a QROPS. RPSM14101050 provides further details.

Please note that if you are writing to APSS for confirmation that a scheme is a QROPS, the name of the actual scheme to which the transfer will be made is needed. It is not possible to provide confirmation of QROPS status using a company name.

11. 1SF Reminder

Please remember to ensure that there are no outstanding 1SF matters relating to any year from 1996 right up to 5th April 2006. If you find that a year or number of years need to be settled then please contact Luke Saxton on 0115 974 1665 for information as to how the situation can be easily and quickly resolved.

12. Contact Us

If you have any questions about anything to do with new tax rules and you can’t find the answer in the Registered Pension Schemes Manual, please contact our helpline number 0115 974 1600 (9.00 to 17.00 Monday to Friday) or write to us at

Audit & Pension Schemes Services (APSS)
Yorke House
Castle Meadow Road
Nottingham
NG2 1BG