Pensions Tax Simplification Newsletter No 13 - 28 April 2006

Contents

  1. Introduction
  2. Impact of A-Day
  3. Pension Schemes online
  4. Completion of Protection of Existing Rights form APSS200
  5. Non-standard Relevant Valuation Factors
  6. Government Actuary's Department (GAD) - Unsecured Pension Enquiries
  7. Regulations revoked by Finance Act 2004
  8. Pensions Industry Working Group results from 3rd Survey
  9. Changes to Application Process – Newsletter No 3
  10. Contact us

1. Introduction

Welcome to the thirteenth edition of the Pensions Tax Simplification Newsletter. This newsletter contains several articles including how to complete the Protection of Existing Rights form (APSS200) which may be of immediate operational interest to many of our customers. As always please circulate this newsletter to anyone who you think may find it useful as it helps us to help you if messages and guidance are cascaded as quickly as possible to those who might need it.

2. Impact of A-Day

For staff in APSS, A-Day went relatively smoothly. The co-operation and patience of our customers has been much appreciated and has greatly helped during this transitional period. The helpline has as you can imagine been very busy with over 2500 calls being handled in the two weeks since A-Day. This is more than double the number we received in the equivalent period last year. We are deploying extra staff to the Helpline to deal with this volume of calls and are currently answering 80% of calls first time they try, but please bear with us if you are unable to get through first time.

At present and based on the volumes we are currently receiving, we are able to turn around nearly all paper forms relating to the new regime, including new scheme registrations and notifications for protection of existing rights, within 48 hours.

3. Pension Schemes Online

The Pension Schemes Online service is now available.

Sending or receiving information online is a convenient and quick way to do business with us. It is more reliable and efficient than using paper, and can cut down on storage space, post and administration. And because information mostly passes between computers without manual intervention, there is less chance of it being misinterpreted, or of mistakes being made.

Key features of our Pension Schemes Online service include:

  • online registration for pension schemes to register for tax relief and other exemptions
  • online completion of forms and returns with the ability to save partially completed information
  • built-in guidance to help with completion of forms and returns
  • validation of data sent online
  • Scheme Administrators and Practitioners will receive Pension Scheme Notices, reminders and certificates over the Internet but they can also request to receive them on paper as well.

If you want to know more about Pension Schemes Online and the registration process see Introduction to Pension Schemes Online

Pension Schemes Online – the customer experience

We value your feedback about our Pension Schemes Online service and would like to hear about your experiences and any improvements that you would like to see. Although it is not possible for us to reply to you and immediate changes to the system will not on the whole be possible, our Give us feedback service is a tool for you to express your views. The ‘HMRC Customer Feedback Team’ will review your comments and if appropriate we will use them to assist in the development of, and enhancements to our online service.

4. Completion of Protection of Existing Rights Form (APSS 200)

We have unfortunately had to reject nearly one third of the APSS 200 forms (PDF 67K) that we have received in the first few weeks, from those that are applying for enhanced protection. Two of the main reasons behind this have been;

  • members are ticking “Yes” to question 3.1 “Have you been an ‘active’ member of a registered scheme at any time after 5 April 2006”
  • members are ticking “No” to question 3.4 “Have you surrendered your ‘excess rights’?”

In both these cases, the above answer will result in the notification being rejected as the individual is not entitled to Enhanced Protection.

We have also had to reject a number of forms where a lump sum figure has been included at question 3.6, but this figure has not been included within the total pension rights at question 3.7. The value of any pension rights at question 3.7 should include any lump sum rights.

If you are completing this form or are involved in helping others complete these forms, please can you ensure that you read the guidance notes for the form, APSS 200 Notes (PDF 49K). This should avoid any unnecessary problems by the forms having to be returned to the originator. In particular, please note that the term ‘active’ on the APSS 200 at Q3.1 is used in a different sense to the often used term ‘active member’. You are considered to be an ‘active’ member of a registered pension scheme when

  • relevant benefit accrual occurs under any of your arrangements in a registered pension scheme. Relevant benefit accrual occurs in different ways depending on
    whether the arrangement under which your benefits are being provided is a money purchase arrangement or a defined benefit or cash balance arrangement.
  • a transfer is made from any of your arrangements in a registered pension scheme and that transfer is not a ‘permitted transfer’.
  • you set up a new arrangement under a registered pension scheme otherwise than to receive a ‘permitted transfer’.

We have also received a lot of queries about questions 4.5 and 4.6 on this form. Again the accompanying notes explain further what is required here and what each category of asset at question 4.6 should include. You should note that the total of all the assets declared at question 4.6 is unlikely to be the same as the value of pension rights declared at question 4.1. This is because, for 4.6 you only need to put in the value of assets underpinning money purchase arrangements . Question 4.1 is the value of all your pension rights not in payment at 5th April 2006.

5. Non- standard Relevant Valuation Factors

The standard relevant valuation factor of 20 for valuing pensions coming into payment, is based on certain assumptions, one of which is that the pension being provided will not increase annually by more than 5% or the increase in the retail prices index. If scheme rules allow increases of more than this amount, and the usual relevant valuation factor of 20 is used, members are likely to fall within the scope of Benefit Crystallisation Event 3 (BCE 3) in the second and subsequent years of their pension (see RPSM11104310).

To avoid this, the Scheme Administrator may approach HMRC and negotiate a relevant valuation factor (RVF) of more than 20 where pensions increase by more than 5% per annum. Where a higher non-standard RVF of more than 20 is agreed, HMRC will also specify the relevant annual percentage that should be used for permitted margin purposes under the scheme, where dealing with an increase in a scheme pension entitlement under the scheme crystallising through BCE 3 (see RPSM11104350).

A higher RVF will mean more crystallises for lifetime allowance purposes when the entitlement to that scheme pension arises, but may prevent subsequent BCEs being triggered in future years through BCE 3, as and when increases are applied to that pension.

If a registered pension scheme wishes to use a RVF that is greater than 20 then they may do so provided they obtain HMRC agreement. HMRC cannot agree a RVF that is lower than 20, and nor will it agree a different factor for individual members. Any higher factor agreed must be applied to all BCE 2s occurring on or after the date of the agreement, under any arrangement held by any member under the scheme, in all circumstances.

The higher RVF and rate of increase do not apply to pensions which were
crystallised prior to the agreement. For those pensions, any increase above the normal permitted margin, will continue to trigger a BCE 3.

Conditions for agreement

Under Section 276 (2) of Finance Act 2004, Scheme Administrators may by agreement with HMRC adopt a higher Relevant Valuation Factor (RVF) than 20. When a higher Relevant Valuation Factor (RVF) is agreed, HMRC will also agree the annual rate of increase in scheme pensions. Unless there are exceptional circumstances, HMRC will only agree to the adoption of a higher RVF if all of the following conditions are satisfied-

  • The scheme has at least 20 members.
  • The proposed rate of increase of pensions will apply to all members of the scheme who start to receive a pension on or after the date of the agreement.
  • HMRC is satisfied that the proposed non-standard valuation factor accurately reflects the value of pension to be paid, and the proposed rate of increase.
  • The proposal is not part of avoidance arrangements to increase the member’s entitlement to a lump sum on which there is no liability to tax.

Applications for HMRC agreement to adoption of a RVF factor greater than 20 must be made in writing by the Scheme Administrator or by an appropriately authorised practitioner to Audit & Pension Scheme Services (APSS), Yorke House, Castle Meadow Road, Nottingham, NG12 2BG.

Applications should state

  • the name of the scheme and its SF or PSTR reference
  • the proposed higher RVF under Section 276 FA04
  • the proposed annual rate under Schedule 32 paragraph 11(4)(a) FA04
  • the number of members within the scheme, and
  • include sufficient detail to enable APSS to establish that all of the above conditions have been met.

APSS may request further information before making a decision. If such information is not supplied within a time specified by APSS when making the request, the application will lapse.

When agreement is reached, APSS will confirm in writing the agreed higher RVF.
The letter will also specify the agreed relevant annual percentage rate of increase in scheme pensions, for the purpose of determining whether a Benefit Crystallisation Event 3 is triggered.

The agreed higher RVF and higher rate of increase will apply to all scheme pensions crystallised on or after the date of APSS agreement. The agreed higher RVF and higher rate of increases will not apply to scheme pensions or increases in pensions where the individual became entitled to that pension prior to the date of the agreement.

When APSS cannot agree a proposed higher RVF a written refusal will be issued, stating the grounds for refusal. There is no right of appeal against that refusal.

6. Government Actuary's Department-Unsecured Pension Enquiries

If you have any questions on using the Government Actuary's Department (GAD) tables for calculating the basis amount for unsecured pensions, you should seek guidance from the Registered Pension Schemes Manual (RPSM 09102330) or contact APSS in Nottingham. Please do not contact GAD.

7. Regulations revoked by Finance Act 2004

HMRC have received a number of enquiries asking if there will be a Statutory Instrument to formally repeal regulations revoked by Finance Act 2004. We confirm that once primary legislation that props up the regulation is repealed, the power falls away and the regulation lapses. A Statutory Instrument is therefore not required. We have however produced a list of regulations which have lapsed by virtue of the coming into force of Part 4 of the Finance Act 2004.

8. Pensions Industry Working Group results from 3rd survey

This is the third survey carried out by the project with volunteers from the Pensions Industry Working Group (PIWG) whom we thank for taking the time to participate.
The results gave us an insight in to the Pension Industry’s readiness for A-Day and provide a baseline of customer satisfaction within APSS. Although the survey is not statistically valid it has once again given us the opportunity to gain the industry’s perspective of pensions tax simplification.

Generally the view of the respondents was that members do fully understand the proposed changes and this was taken over a range of staff from senior management, middle management and front line staff. This led to most of the respondents agreeing that they will be ready to comply on A-Day. However, comments show that had the regulations been laid earlier the industry would have felt more prepared.
Of those questioned most of them are planning to build on an existing IT system but not all of the industry felt their IT systems would be ready for A-Day. Manual systems are currently being used.
In preparation for A-Day we have been publishing information on the web site and we asked for feedback on the value of such things as newsletters, fact sheets and guidance. The respondents advised that they have found some of these to be very helpful, especially the external newsletters.
The industry respondents indicated that when they had a query they would use their own in house guidance first, then the Registered Pension Scheme Manual (RSPM) before phoning the pension helpdesk.
There were some positive comments given at the end of the questionnaires. Some said that our staff were helpful and friendly and wanted to assist even if they weren’t always able to do so. It was also said that HMRC have clearly worked very hard in an open and approachable way but the scale of changes that have occurred have caused problems in releasing some information and legislation in sufficient time.
But there was some criticism of the way we had handled other areas of our work that we are now taking forward with a view to improving in these areas. Some of this work is being instigated with the Pensions Industry Working Group at their next meeting.

9. Changes to Application Process – Newsletter No 3

There appears to be some misunderstanding of the article ‘Changes to Application Process’ in Newsletter No3. The intention of this article is to explain that the tax approval process as detailed in the Practice Notes IR12 still applied but with one exception. The deadline at PN18.5 for pension schemes to apply for tax approval for schemes established between 6 December 2005 and 5 April 2006 is reduced to 30 June 2006. Therefore any schemes established before 6 December 2005 are not affected by this change and the deadlines set out in PN18.5 of Booklet IR12 apply.

However we appreciate this misunderstanding may cause some difficulties for schemes established between 6 April 2005 and 5 December 2005 where the application has been submitted late . We will therefore providing they meet the conditions to be approved (other than the deadline in PN18.5) approve these schemes. And this approval will be effective from 5 April 2006.

If you have a scheme established between 6 April 2005 and 5 October 2005 and it was rejected solely on the grounds the application had been submitted outside the time limits in PN18.5 then you may re-submit it but you must do so by 30 June 2006.

Schemes established before 6th April 2005 will need to register for tax relief and exemptions under the provisions of Finance Act 2004 using Pension Schemes Online or form APSS 100.

10. 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).