Pensions Tax Simplification Newsletter No 23
10 January 2007

Contents

Introduction

Welcome to the twenty third edition of the Newsletter.

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

Tax Relief For Pensions - 2006 Pre Budget Report Reforms

Announcements

The 2006 Pre Budget Report (PBR) contained several announcements on changes to the pensions’ tax regime. These changes are to ensure that the pensions tax rules continue to meet their original intention and that pensions tax relief is only used for saving for a retirement income and concern:

  • tightening up rules on Alternatively Secured Pensions (ASP) & introducing measures to prevent other pension options e.g. scheme pensions, being used as a means to pass on tax-favoured funds;
  • working with the pensions industry to ensure that pensions tax relief principles apply to Pensions Term Assurance contracts;
  • a small package of technical improvements to ease rules;
  • consulting with industry on areas for further deregulation; and
  • a change in the rules on residential property held by investment-regulated pension schemes (which include SIPPs). This ensures that investment-regulated pension scheme holdings in UK-REITs maintain the required diversity of ownership.

Further details on these measures can be found in Chapter 5 (paragraphs 5.74 – 5.77) of the main PBR document on the HM Treasury Website and on the Pre Budget Report pages on the HMRC website - PBR notes 13, 14 & 15, the partial regulatory impact assessment “Tax relief for pensions – 2006 PBR Reforms (PDF 102K)”, the consultation document “Tax relief for pensions: Lifetime Allowance test (benefit crystallisation event 3) and Dependants’ Scheme Pensions rules”, and the draft legislation and explanatory notes “Alternatively Secured Pensions and Transfer Lump Sum Benefit etc (PDF 513K)”

Latest developments

The PBR announcements set out some specific issues on which the Government has asked HMRC to discuss with the industry. HMRC has held two meetings with industry representatives on the package of measures as a first step in that discussion process to set the scene for future discussions, develop ideas with industry representatives about how to get the most effective results out of the discussion process on each area and outline the timetable for discussion.

Qualifying Recognised Overseas Pension Schemes (QROPS)

We announced in Newsletter No 21 that we were publishing on our internet site a list of those QROPS that have consented to the disclosure of their status, and that we would be updating the list monthly.

It is recognised that a UK Scheme Administrator might have reason to check that an overseas scheme to which a transfer has been requested is the QROPS with that name shown on the HMRC Audit & Pension Schemes Service (APSS) list – and not another scheme with the same name. If so, the Scheme Administrator could ask the scheme’s manager to show him the QROPS acceptance letter received from APSS.

UK Scheme Administrators and members should be aware also that a transfer may not be permissible even though an overseas scheme is a QROPS. QROPS status has significance for UK tax purposes only. Whether or not a transfer to a QROPS can be made will depend also on the scheme being able to accept a transfer under the legislation of the country in which it is established. In particular, it is APSS’ understanding that transfers to US “qualified” retirement plans, including individual retirement arrangements (IRAs), cannot be made as such plans are not permitted to accept a transfer of funds from a UK registered pension scheme. Administrators and members should contact the relevant overseas authority, not APSS, for confirmation.

Deferred Annuity Contracts

An announcement has been made on the HMRC website of our intention to publish a draft regulation in the New Year amending the information requirements for certain deferred annuity contracts.

The intention is to exempt those contracts set up on or after 6 April 2006 from the requirement to report their winding up where that notification is the first report that it has been necessary to make unless the contract:

  • has received “relievable pension contributions” as defined in S.188(2) FA2004 and/or contributions by an employer that in aggregate exceed £10, or
  • has received a “recognised transfer” as defined in S.169 FA2004 (other than the transfer that led to the setting up of the contract) or
  • is an investment-regulated pension scheme which has directly or indirectly held an interest in taxable property or
  • The Scheme Administrator has already made a declaration under S. 270(2)(b) FA 2004.

It will still be a requirement that a Scheme Administrator makes a declaration under S. 270 FA 2004 but no time limit is imposed for the submission of that declaration. HMRC will be content if schemes affected by the proposed change to the Provision of Information Regulations delay making the declaration until such time as there is a need to make an Event Report for some reason other than their winding up or they need to make an Accounting for Tax return. We accept that might well mean that some Scheme Administrators of contracts may never make the declaration.

Tracing a Scheme Pension Scheme Tax Reference (PSTR)

There are a number of reasons that a Scheme Administrator will need the PSTR for their scheme if they do not already have it, one of which is to complete the Pension Scheme Return for the Pension Regulator.

In order to obtain the PSTR for a scheme, The Scheme Administrator should notify HMRC that they are the Scheme Administrator for the scheme.

To do this online, you should follow the guidance provided with Newsletter 20 – Notifying HMRC that you are the Scheme Administrator of a pension scheme. If you are unable to use the online service, you should use the form APSS 161 (PDF 60K), and form APSS 151 (PDF 49K) if you have not completed stage 1 of the registration for Pension Schemes Online. For guidance, please refer to ‘Getting started online’ in Newsletter 20. Once the Scheme Administrator is added to the scheme record by HMRC they will be able to view the PSTR online or if formally requested, APSS would be able to advise the Scheme Administrator of the PSTR.

Registered Pension Schemes Manual

The Registered Pension Schemes Manual (RPSM) is split into four distinct sections, each targeted at a different audience and written with the appropriate reader in mind.

The Technical Pages are a guide to legislation and regulations underpinning the tax regime for registered pension schemes, the other pages are mostly concerned with the practical application of the new regime.

Users are reminded that not all the information in RPSM is contained within the Technical Pages. The Scheme Administrator pages contain a lot of information that a Scheme Administrator or practitioner needs to know from a practical perspective, for example the information requirements. Likewise the Member and Employer pages may contain the answers to various questions that you might get from members or employers.

So if you can’t find what you are looking for in the Technical pages, think whether or not this something that a Scheme Administrator, Member or Employer might want to know, and if so look in the appropriate section. The answer is probably there.

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 APSS by e-mail or phone our helpline number 0115 974 1600 (9.00 to 17.00 Monday to Friday) or you can write to us at

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