Pensions Tax Simplification Newsletter No 11 March 2006

Contents

1. Introduction from Jayne Banner, Deputy Director Savings, Pensions, Share Schemes

2. Earnings Cap

3. Protection certificate reference numbers

4. Decimal points and Protection

5. Update 157 - a reminder

6. Changes to the Internet

7. 1 (SF), 2 (SF) and 3 (SF)

8. Serious ill-health and DWP requirements

9. Overseas transfers and QROPS

10. Customer Service Standards

11. Communication after 6 April 2006.

12. Pension Schemes Online

13. Policy and legislation

14. Contact us

1. Introduction from Jayne Banner

At last, A-day is almost here – 4 years from the publication of the first Consultation document there are now (at the time of going to print) only 4 more working days to go! We hope you are now more or less ready to embrace the changes and new challenges which face us all.

As part of this process, my office, Audit and Pension Schemes Services (APSS) has just completed the task of restructuring and reorganising its teams so that we are ready to take on pensions tax simplification and help you through this period and beyond. This has resulted in most of our telephone numbers being changed, although the APSS helpline will still be 0115 9741600. However for continuity purposes existing enquiries will still dealt with by the same examiner and my staff will redirect your calls where necessary.

In this month’s newsletter, as well as providing some technical information on the earnings cap together with decimal points and protection I would like to point out a couple of important articles which will help you with your enquiries. We have published our customer service standards. This document sets out the general customer service standards that APSS will try to meet in 2006-07. It details our plans for dealing with specific types of correspondence in the transition to the new simplified regime and our contingency plans should full online facilities not be available for any reason, or be available in a reduced capacity. We are also publishing our top tips for ensuring that your enquiry is dealt with efficiently. It will be these simple methods of addressing post and highlighting the subject matter that will ensure that your post is directed to the right person to deal with as soon as possible.

From A-day APSS will no longer have the same means of discretion. The rules for the new regime are set out in legislation and regulations and we have produced supporting guidance. We will therefore be encouraging customers to self-serve where the guidance has been published. Obviously in the early stages we will help customers to do this but APSS will not be staffed to answer every question. And by April 2007 we will be responding to telephone and written enquiries by first checking with customers that they have tried to self serve by using the guidance. However, we also recognise there may be new circumstances not catered for by the guidance, and for these APSS will be adopting the same process as other parts of the Department, and using Code of Practice (COP)10 procedure. Customers will be asked to set out all the facts in order to gain a ruling on a particular transaction or circumstance.

Finally, I would like to thank you all for the huge effort and contribution you have made to this project. This has been a collaborative project involving secondees from the pensions industry initially helping both HMRC and the Treasury to develop policy. There have been two major consultations, the first setting out the main policy behind the regime, the second providing more detail. HMRC and the Government have together listened to the industry – listened to the comments and concerns from these consultations and have, where appropriate, changed the legislation and guidance. And this consultation process is still ongoing. I, on behalf of HMRC would like to thank all those who have supported this project and recognise this is an excellent example of the industry and HMRC working effectively together.

Jayne Banner
Deputy Director SPSS

2. The Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 – permitted maximum figure

The Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 [SI 2006/No 364] were laid on 17th February 2006 and come into force on 6 April 2006. These regulations modify the rules of existing pension schemes that automatically become registered pension schemes on 6 April 2006 for a certain period, called the “transitional period”, which ends on the earlier of:

  • the first date after 5 April 2006 on which rule amendments in relation to such an existing scheme take effect that state that the modification regulations no longer apply to the scheme, or
  • the end of the tax year 2010-11 (or such later time as is prescribed by HM Revenue and Customs).

Before 6 April 2006, section 590C of the Income and Corporation Taxes Act 1988 (section 590C) effectively applied the permitted maximum (or “earnings cap”) to pension schemes, such as tax approved retirement benefits schemes and personal pension schemes. The permitted maximum was introduced for the tax year 1988-89 and was initially set at £60,000. In subsequent tax years section 590C required the permitted maximum to be set by a Treasury Order and for the tax year 2005-06 the figure is £105,600.

One of the features of the these modification regulations is the preservation of the effect of the permitted maximum on existing pension schemes to which the modification regulations apply during the transitional period, despite the intended repeal of section 590C on 6 April 2006. The regulations continue to apply the permitted maximum during the transitional period as if section 590C had remained in force and the Treasury had made the required orders to set the permitted maximum figure for a particular tax year.

Had it not been intended to repeal section 590C on 6 April 2006, a Treasury order would have stated the permitted maximum figure for the 2006-07 tax year. Had that order been made, the permitted maximum figure for the 2006-07 tax year would have been £108,600.

3.Protection certificate reference numbers

This article tells you about the temporary reference numbers that will be issued in connection with certificates to protect a lifetime allowance.
Protection certificates will have an 8 character reference number which will be made up of seven numbers and an alpha character . Initially the first number on the certificate will always be 9 to indicate it is a temporary reference number, for example 9123456A.

After a few months we will be replacing these temporary certificates with a new certificate which will contain a different 8 digit reference number. These will be issued when we transfer all of the related data held on the temporary database to our new IT system which will allow it to be viewed on Pension Schemes Online.

This will not affect the amount of protection a person is entitled to and the only thing that will be changing is the certificate reference number.

It is possible that some people will have benefit vesting events occurring under 2 different protection certificate reference numbers. One event under the temporary reference number and then a later event under the permanent reference number. If your Scheme Administrator queries this you can refer them to this article.

4. Protection and decimal points

We have received some calls about the number of decimal places that primary protection factor will be given to on an enhanced LTA certificate. This will be rounded up to two decimal places.

Similarly when you give details to a member of the percentage of LTA used, this should also be given to two decimal places, but this time it should be rounded down. Further information can be found at RPSM 11100040.

5. A reminder about Update 157

Pensions Update 157 (PDF 27K) offered Administrators the opportunity to bring all 1SF matters up to date for years 2004/05 and earlier prior to Pensions Tax Simplification beginning in April 2006. Please make sure you have read this Update and taken any necessary action .

6. Changing the Pensions Internet pages

We are changing our part of the HMRC site which can be found on the Pension Schemes pages to bring to the forefront the published material available around Simplification. This will also mean that some of the items relating to the pre A Day legislation will be less prominent and will be deleted as they become irrelevant.

You will notice that on that front page of Pension Schemes there is now a link to the latest news and also a link to these newsletters under the section headed 'We would like you to know'. Keep an eye on the latest news for all the changes as we will always publicise them here.

The protection forms are already available at Registered Pension Schemes: Forms and Completion notes and the other forms will be available on the same web page at 6 April. We will also be providing links to the 7 most frequently used forms on the front page at Pension Schemes.

All of the technical guidance is now available in both PDF and HTML formats, with the exception of chapter 7, at Registered Pension Schemes Manual (RPSM).

7. 1(SF), 2 (SF) ,3 (SF)

Certain chargeable events arising up to A-Day must be reported to this office on specified forms and within a specified time limit. Here are links to the relevant forms:

Payments made up to 5 April 2006 should be reported in the normal way and within the time limits set out on the relevant form: 1(SF) no later than30 days after the end of the tax year in which the event occurs;2(SF) no later than 180 days after the end of the insurance company's accounting period in which the event occurs;3 (SF) not later than 30 days after the end of the tax year in which the event occurs.

However for some chargeable events where the payment is due before 5 April 2006 but the payment is made on or after 5 April 2006 the Taxation of Pension Schemes (Transitional Provisions) allow Scheme Administrators until 5 July 2006 to make the payment. These events should continue to be reported on the 1SF,2SF or 3SF as appropriate but should now be sent to APSS in Nottingham. APSS will now raise assessments for the tax due on these returns.

Payment in respect of charges on 3SFs should continue to be sent with the forms to APSS. Payment in respect of charges on 1SFs & 2SFs should be sent on receipt of a Notice to Pay, to the relevant Accounts Office and not to APSS with the forms. Payment should also continue to be made for these events by the current method, that is cheque, rather than via the online payment system that can be used for payment of the charges returned on the Accounting for Tax return.

8. Serious Ill Health and DWP requirements

The HMRC rules require that serious ill-health lump sums must extinguish the member’s entitlement to benefits under the arrangement.

In response to the consultation on The Occupational and Personal Pension Schemes (Miscellaneous Amendments) Regulations 2006, the Government published in February 2006 the document “Pensions: Contracted out benefits -Government response to the consultation”

This stated that “The Government is content that this DWP rule for contracted-out rights should operate satisfactorily with the HMRC legislation that covers serious ill-health lump sums payments more generally. So, in order to satisfy DWP and HMRC requirements, schemes will need to ensure that contracted-out rights retained to provide a survivors’ pension are clearly identified and held in a separate arrangement from those rights commuted into a serious ill-health lump sum.”

9. Overseas transfers and QROPS

Further to the article in Newsletter No 10 on overseas transfers, the following is a link to a number of questions and answers that we have been asked in relation to overseas transfers and QROPS. These are mainly aimed at administrators of non UK schemes.

10. Customer Service standards

The Customer Service standards were initially introduced to the industry at the Pensions Industry Working Group. These standards are based on estimated volumes that were arrived at following discussion with the pensions industry. If these estimates prove to be wrong, then we may have to re-visit these service standards.

Top ten tips for getting your post dealt with quickly and efficiently

  • Make sure you always put the correct SF or Pension Schemes Tax Reference (PSTR) on any correspondence you send HMRC
  • Only mark genuine cases a priority. For example notifications for LTA protection where the member wants to take their benefits within 3 months of the claim being submitted. Please make sure that this is made clear on the notification. If every case is marked as priority we simply will be unable to deal with them and genuine cases may get missed.
  • Put clear generic titles at the top of your post stating what your enquiry concerns. For example if you enquiry is about registration, contracting out or LTA notifications etc please put this at the top of your post in order for your enquiry to be quickly directed to the correct team within APSS.
  • Mark your post clearly whether your enquiry relates to pre A-day or post A-day matters.
  • Keep you enquiries to a minimum - look at all the information first on our website – comprehensive guidance can be found in the Registered Pension Schemes Manual (RSPM). We have also published a series of Newsletters covering hot topics and regularly update FAQ’s on our website which may answer your query.
  • When completing forms online check the help text first. If submitting manual forms look at the completion notes in the first instance.
  • Make sure you have completed the forms comprehensively and have not missed any of the required information to avoid rejection of the forms – especially important for registering a pension scheme. You must ensure that the address is put in the correct format.
  • We cannot give financial advice about members’ pensions and what is best for them. It would be helpful if you could inform your clients of this so that they do not ring our helpdesk unnecessarily as this stops us dealing with queries we could be answering.
  • Do not e-mail individual examiners but use the general e-mail facility which will be available. The link will be on our website from 6 April.
  • Do not submit unnecessary documentation with your post, such as scheme rules unless we ask for them.

11. Communication after 6 April 2006

Although A-day is nearly here we will continue with the means of communication we have already put in place. This means that for the present we will:

  • continue to hold the regular meetings with the Pensions Industry Working Group. These meetings will be used to seek customer views on new business processes and Pension Schemes Online; to discuss operational issues; to establish how people are finding the new regime and discuss what support the industry may need.
  • continue to publish newsletters as this has proven to be an effective way of telling you about issues and providing additional information to customers .
  • where necessary, publish ad hoc special edition newsletters if we need to communicate anything urgently, including some text under. “What’s New” on HMRC front page to alert customers to the publication of the Newsletter.
  • continue to publish frequently asked questions and their answers and update these as the hot topics change.

12. Pension Schemes Online

There are a few things that we thought it might provide helpful to tell you about our new Online service with regard to system availability.

Where will the links be for using Pensions Schemes Online?

  • There will be a link on the HMRC front page on the Website at “Do it online”. Pensions will be added to this as an extra option.
  • There is also a “service availability” page on the HMRC front page. Pensions will be added to this list too. It will provide information about the service availability and if there is any planned downtime. There will also be a link from this page to the Pensions Online service.
  • There will also be a link to the “Do it online” pages from the APSS website.

Pre-registered Scheme Administrators and Practitioners

Just a reminder, that Scheme Administrators who have pre-registered to use Pensions Schemes Online as part of the recent data cleanse exercise will be sent their ID and activation by first class post on Monday next week (3rd April). Practitioners will also be sent theirs by the same date. Practitioners, will be able to view details of schemes that HMRC has been authorised to allow them to view by a Scheme Administrator, following completion of registration for Pension Schemes Online.

Communicating IT issues on Pension Schemes Online

  • If there is downtime for a while (probably at least 2 hours) then a message will appear on the “pensions do it online” page before you log in.
  • A message will also appear on the “service availability” page informing that the service is down and when it is likely to be working again.
  • Where appropriate we will publish progress on TPSS on pensions webpages and more detailed information will be published in our newsletters

And a final word

Pension Schemes Online will be released on 6 April and as with any new major IT system, may have some initial problems. In order to minimise these we are continuing to suggest (as we do at any events that we attend) that you do not all rush at once to log on to the new service just to have a look. If you can it would be helpful if you could carry out any non-time constrained transactions over a more prolonged period from the “go-live” date.

13. Policy and legislation

Laying of regulations

The final regulations to enable pension simplification to come into force on the 6th April 2006 were laid during March. Brief details of the instruments and the dates they were laid follow. The Statutory Instruments are published on the HMRC Website.

Regulations laid 1 March 2006

The Taxation of Judicial Pensions (Consequential Provisions) Order 2006 (S.I. 2006 No. 497)

The judicial pensions legislation contains references to the previous tax regime for pension schemes (notably sections 590C and 594 of the Income and Corporation Taxes Act 1988) which will be redundant following 6th April 2006 ("A Day"). This Order therefore updates provisions which refer to the previous tax regime.

The Pension Schemes (Block Transfers) Permitted Membership Period) Regulations 2006 (S.I. 2006 No. 498)

The Finance Act 2004 contains transitional provisions and savings, designed to protect rights which existed before 6th April 2006. That protection is lost if the individual’s rights are transferred out of the scheme on or after 6th April 2006. Some protection may be retained if the rights are transferred as part of a block transfer provided the member was not a member of the receiving scheme for a prescribed period. These regulations prescribe the period.

The Pensions (Transfer of Sums and Assets) Regulations 2006 (S.I. 2006 No. 499)

These regulations provide for the transfer of sums and assets by registered pension schemes and insurance companies, where those sums and assets represent pensions in payment.

Regulations laid 10 March 2006

The Registered Pensions Schemes (Provision of Information) Regulations 2006. SI 2006 No. 567
Within the new unified pension tax regime, each registered pension scheme will be expected to appoint a scheme administrator to carry out various tax obligations on behalf of the scheme. These regulations specify the requirements for the provision of information in connection with registered pension schemes. In particular they prescribe the records that a scheme must maintain, the information that a scheme administrator is required to provide to HMRC, scheme members and other scheme administrators.

The Registered Pension Schemes (Prescribed Manner of Determining Amount of Annuities) Regulations 2006 SI 2006 No. 568

These regulations provide for the amount by which a lifetime annuity may vary where the amount of that annuity is linked with changes in one of the factors set out in the regulations, such as changes in the retail prices’ index or the market value of assets. The regulations will apply to annuities where the amount of an annuity can in some circumstances vary downwards, but will not apply where the amount of the annuity can only either stay level or increase.

The Registered Pensions (Splitting of Schemes) Regulations 2006 SI 2006 No. 569

Within the new unified pension tax regime, each registered pension scheme will be expected to appoint a scheme administrator to carry out various tax obligations on behalf of the scheme. These Regulations provide for certain registered pension schemes together with any successor scheme to be split and treated as if they were a number of separate sub-schemes and for the scheme administrator of such sub-schemes to assume the various tax liabilities and responsibilities of the scheme administrator of the split scheme.

The Registered Pension Schemes and Overseas Pension Schemes (Electronic Communication of Returns and Information) Regulation 2006 SI 2006 No. 570

These Regulations make provision about the use of approved methods of electronic communication for the purposes of delivery of information to HMRC required under the Finance Act 2004. There provisions will not apply until a date to be appointed by the Commissioners for HMRC and for now the provisions of the regulations imposing a requirement that information must be delivered electronically is to be read as merely permitting electronic delivery.

The Registered Pension Schemes (Authorised Member Payments)(No. 2) Regulations 2006 SI 2006 No. 571

This Order authorises registered pension schemes to make certain payments to which entitlement accrued before 6th April 2006. The effect is to exempt these payments, made on or after 6th April 2006, from the unauthorised payments surcharge.

The Taxation of Pension Schemes (Transitional Provisions) Order 2006 SI 2006 No. 572
and The Taxation of Pension Schemes (Transfer, Re-organisation and Winding Up) (Transitional Provisions) Order 2006 SI 2006 No. 573

The pension simplification provisions in Finance Act 2004 contains transitional provisions and savings, designed to protect rights which existed before 6th April 2006. The general principles are that rights are protected in the scheme under which they were held on 5th April 2006. These Orders contain transitional provisions in relation to the new provisions for pension schemes coming into force on 6th April 2006.

The Registered Pensions Schemes (Authorised Surplus Payments) Regulations 2006 SI 2006 No. 574

These regulations describe when registered occupational pension scheme can pay surplus funds to a sponsoring employer subject to a tax charge at 35% on the payment. They allow authorised surplus payments to be made to employers in circumstances where such payments are made in accordance with DWP legislation, and also in certain circumstances that are not covered by DWP rules. They also prescribe when surplus payments can be made to employers where such surpluses arise on the death of a member.

The Pension Protection Fund (Tax) Regulations 2006 SI 2006 No. 575

These Regulations make provision, in relation to the Pension Protection Fund and the Fraud Compensation Fund, bodies established under the Pensions Act 2004, and managed by the Board of the Pension Protection Fund. The Regulations exempt the two funds from tax, and provide that the Pension Protection Fund receives the same tax treatment as the occupational pension schemes it is designed to protect.

The Social Security (Contributions) (Amendment No. 2) Regulations 2006 (S.I. 2006 No. 576

These regulations amend the Contributions Regulations to:

  • preserve the position that payments of employers contributions to and benefits from registered pension schemes will not be subject to a NICs charge,
  • introduce new provisions to provide that payments of employer contributions to and benefits from EFRBS will not be subject to a NICs charge provided generally they are paid out within the limits of benefits that can be paid out of a registered scheme; and
  • following the abolition of payment of Working Tax Credit by employers with effect from 1 April 2006, remove the requirement for employers to include Working Tax Credit in the calculation of any default surcharge or calculations required for quarterly payment of earnings-related contributions.

The Registered Pension Schemes (Authorised Payments — Arrears of Pension) Regulations 2006 SI 2006 No. 614

This regulation provides for arrears of pension to be paid to a member as an authorised payment where a scheme is required to pay this amount for the period up until the member becomes actually entitled to the pension in accordance with section 165(3) Finance Act 2004. The sum will be taxable pensions' income

Regulations laid 15 March 2006

The Taxation of Pension Schemes (Consequential Amendments of Occupational and Personal Pension Schemes Legislation) Order 2006 No.744

This instrument makes consequential amendments to other subordinate legislation for occupational and personal pension schemes to secure consistency with the provisions of Part 4 FA 2004.

The Taxation of Pension Schemes (Consequential Amendments) Order 2006 No.745

This instrument makes consequential amendments to other primary and secondary legislation to secure consistency with the provisions of Part 4 FA 2004.

The Stamp Duty and Stamp Duty Reserve Tax (Definition of Unit Trust Scheme and Open-ended Investment Company)(Amendment) Regulations 2006 No. 746

This instrument amends other subordinate legislation to confer an exemption from Stamp Duty Reserve Tax on surrenders of shares within Individual Pension Accounts to secure consistency with the provisions of Part 4 FA 2004.

Legislation

The following documents were also published in March:

14. Contact us

If you have any questions about anything to do with Pension Tax Simplification please contact our helpline number 0115 974 1600 (9.00 to 17.00 Monday to Friday). From Monday 27 March we will only have one helpline number which will be 0115 9741600. But don't worry because any calls that come through on the old Personal Pensions helpline will still be routed through and dealt with as normal.

If you have any comments about our newsletters then please contact:

Paul Cottis
Audit & Pension Schemes Services
Yorke House
Castle Meadow Road
Nottingham
NG2 1BG
0115 974 1692