Guidance

Pension schemes newsletter 140 – June 2022

Published 30 June 2022

1. Pension scheme arrears and interest including when equalising for Guaranteed Minimum Pension (GMP)

We’re now able to provide further information in circumstances where

• a pension has been underpaid, and the scheme administrator pays arrears of pension
• interest may also be payable in respect of the late payment of the pension instalments

1.1 Scheme administration member payment

Interest payments will qualify as scheme administration member payments (and so as authorised payments) where interest is provided on an arm’s length commercial basis, so is no more than a reasonable commercial rate of interest. You can find further guidance on scheme administration member payments (PTM143100).

Where pension arrears are paid in connection with equalising for the effect of unequal Guaranteed Minimum Pensions, and interest is provided at 1% above base rate (for example, in line with the Lloyds judgment) – either on a simple or compound basis, or at an interest rate specified in the scheme rules – the interest will be treated as a scheme administration member payment.

1.2 Taxation of interest payments

Interest payments made in addition to a payment of pension arrears, that meet the definition of a scheme administration member payment, are taxable as interest under section 369 Income Tax (Trading and Other Income) Act 2005.

The full amount of interest arising in the tax year is chargeable to tax. In a pension arrears context, interest will be taxable in the tax year in which it is paid.

You can find guidance on taxation of interest(SAIM2010).

1.3 Obligation to deduct tax

The person paying interest may be required to deduct income tax at source at the basic rate under Chapter 3 of Part 15 Income Tax Act 2007.

This will depend on whether the interest is ‘yearly’ or ‘short’ interest – there is no obligation to deduct income tax at source on short interest. If the interest is yearly, it will depend on whether either of these apply:

• payment is made by a company, or a partnership of which a company is a member, or a local authority (and if so, whether or not in a fiduciary or representative capacity)
• the recipient’s usual place of abode is outside the United Kingdom.

You can find guidance on when interest is ‘short’ or ‘yearly’ (SAIM9070) and on the meaning of place of ‘abode’ (SAIM9080).

Where the arrears relate to a period of years (as is likely to be the case where pension arrears are paid in connection with equalising for the effect of unequal GMPs), the interest paid is likely to qualify as yearly interest.

In that case, where yearly interest relating to pension arrears is paid by:

• individual trustees, a corporate trustee, or a third-party administrator on a trustee’s behalf, there will be no obligation on the payer to deduct income tax at source unless the payment is made to a person who usually lives outside the United Kingdom (Section 874(1)(d) and 874(6) ITA 2007)
• a company – other than in a fiduciary or representative capacity – there may be an obligation to deduct income tax at source regardless of the recipient’s place of abode

Where there is an obligation to deduct income tax at source on interest, tax is deducted at the basic rate.

Find further information in Deduction of tax (SAIM9078) guidance. To return deductions made use Form CT61.

1.4 Allowances and interest on pension arrears

From the recipient’s perspective, the interest (whether ‘short’ or ‘yearly’ interest) qualifies as ‘savings income’ and most people can earn some interest from their savings before paying tax. Allowances for earning interest before tax has to be paid on it include the:

• Personal Allowance
• starting rate for savings
• Personal Savings Allowance

You can find guidance on savings income (SAIM1080) and on the starting rate for savings and the Personal Savings Allowance at Tax on savings interest.

Depending on individual circumstances, this means that tax may not be payable on some or all of the interest received.

Where tax is due, the recipient should include the interest in a self-assessment tax return or notify HMRC of the liability if they do not receive a notice to make a return.

1.5 Guidance on pension arrears

There is guidance on the payment and taxation of pension arrears in connection with equalising for the effect of unequal Guaranteed Minimum Pensions in the GMP equalisation newsletter – February 2020. Unlike interest, pensions arrears are taxed on an ‘accruals’ basis, and tax must be deducted on arrears under PAYE.

2. Managing pension schemes service

2.1 Client reference

We’ve updated the Managing pension schemes service so that if you’re a pension scheme administrator who authorised a pension scheme practitioner, you can now update the client reference on the practitioner to pension scheme relationship.

2.2 Migrating your pension schemes

Take action now to migrate your pension schemes to the Managing pension schemes service.

In the Managing pension schemes service newsletter – April 2022, we let you know that pension scheme administrators can now migrate pension schemes from the Pension schemes online service to the Managing pension schemes service.

To migrate pension schemes, select in this order:

• ‘Add a pension scheme from the Pension schemes online service’
• each scheme you need to migrate

You should not select ‘Apply to register a new pension scheme’.

If you’ve incorrectly tried to re-register an existing pension scheme that you’re an administrator for, email: migration.mps@hmrc.gov.uk and put ‘Incorrect scheme registration’ in the subject line.

Find further guidance on migrating your pension schemes to the Managing pension schemes service.

2.3 Migrating your retirement annuity contracts and deferred annuity contracts

Take action now to migrate your retirement annuity contracts and deferred annuity contracts to the Managing pension schemes service.

For retirement annuity contracts (RACs) and deferred annuity contracts (DACs), no additional information will be required. You’ll only need to complete the declarations on the Managing pension schemes service to migrate these pension schemes.

If you’re a scheme administrator for multiple RACs and DACs, you’ll be given the option to migrate these altogether, by completing one set of declarations. It can take up to 48 hours for the RACs and DACs to be added to your list of schemes on the Managing pension schemes service.

If you’re migrating a large number of RACs and DACs, and the migration of any fails, they will reappear in your list of RACs and DACs available to migrate from the Pension schemes online service.

You’ll need to check your list of RACs and DACs available to migrate to make sure all the schemes have successfully migrated to the Managing pension schemes service.

2.4 Event reporting

In Spring 2023, we expect to release the event report ‘for 2023-24 on the Managing pension schemes service.

Pension scheme administrators and practitioners will be able to compile the report in-year. There’ll be no limit on the number of members or events that can be reported in a single event report. You’ll also be able to enter details of all types of lifetime allowance protection reference numbers.

From April 2023 there will be a new reportable event for certain public service pension schemes. Draft legislation on this event, which relates to issuing pension savings statements, will be published for consultation later this year. If your scheme is not a public service pension scheme, you won’t have to report this event.

You’ll have the option to upload a file to compile the event report for the following member events:

• event 1
• event 6
• event 22
• event 23
• the new reportable event for certain public service pension schemes

We’ll provide further updates and guidance in future newsletters.

Until the event report is released on the Managing pension schemes service, for pension schemes with a Pension Scheme Tax Reference (PSTR) beginning with ‘0’, you’ll continue to submit event report on the Pension schemes online service.

If you’ve migrated the pension scheme and you’re reporting event numbers 10 to 14 and 19, 20 and 20a, you’ll also need to email pensions.businessdelivery@hmrc.gov.uk.

3. Accounting for Tax returns

In previous newsletters, we’ve explained that you can no longer compile and submit new Accounting for Tax (AFT) returns for any quarter from 1 April 2020, on the Pension schemes online service. If you need to submit any new AFT returns for any quarter from 1 April 2020, you’ll need to migrate the pension scheme.

If you need to submit a return for the quarter 1 April 2022 to 31 June 2022, you’ll need to have migrated your pension scheme and submitted the return on the Managing pension schemes service by the filing deadline of 14 August 2022 to avoid interest and penalties.

Find information on how to submit an AFT return using the Managing pension schemes service.

4. The Pensions Regulator’s blog on pension scams

The Pensions Regulator (TPR) have published a new blog post Jail terms alone won’t keep savers safe from scammers calling for a united effort in stopping scams.

The blog highlights a new joint threat assessment by the Pensions Regulator and the National Fraud Intelligence Bureau into the threat of pensions scams and calls on schemes to follow a new guide on how to report concerns about scams to authorities.

5. Scheme pays reporting clarification

In Pension Schemes Newsletter 138, we gave an update on the Registered Pension Schemes (Miscellaneous Amendments) Regulations 2022.

We would like to clarify the reporting requirements for this.

For reporting tax charges on the Accounting for Tax (AFT) return, normal reporting deadlines apply, unless the notice is received after 31 December in the year following that in which that tax year ended. If the deadline has passed, you should report the charge on the next quarter’s Accounting for Tax return.

For the event report normal reporting deadlines apply, and you should report the issue of the Pensions Savings Statement by 31 January following the tax year to which the report relates.

We’ll update the Pensions Tax Manual to include these changes in due course.