Pensions industry Working Group (PIWG) Meeting Notes - 4 May 2006
Location: Room 2/39 100 Parliament Street
HMRC Attendees
Mike Wells (MW) (Chair)
Jayne Banner (JB)
Jo Begg-McBrearty (JBM)
Ann Walker (AW)
Maggie Anderson (MAn)
Fakruz Zaman (FZ)
Paul Cottis (PC) – Minutes
Pension Industry Attendees
Richard Hardy (RH) – representing the Society
of Pension Consultants (SPC)
Barry Bolland (BB) - representing the Association
of Member-directed Pension Schemes (AMPS)
John Gleadall (JG) – representing the Association
of British Insurers (ABI)
Karen Goldschmidt (KG) – representing the
Association of Consulting Actuaries (ACA)
Diana Geneen (DG) - representing the National Association
of Pension Funds (NAPF)
Eleanor Dowling (ED) - representing the Chartered
Institute of Taxation (CIOT)
Mike Abrams (MA) - representing the National Association
of Pension Funds (NAPF)
Cliff Vidgeon (CV) – representing the Institute
of Payroll and Pensions Management (IPPM)
Charles Milne (CM) – representing the Association
of Independent Financial Advisors (AIFA)
Andrew Carter (AC) – representing the DWP
Action Points arising:
AP 100 - PC to identify if there is a process for reclaiming an overpayment of the LTA charge and advise accordingly.
AP101 – PC said he would look into the missing link to the simplification pages to find out why it wasn’t there.
AP102 – PIWG members to let PC know of any outstanding DWP/HMRC issues by 5 June 06, and whether they or any of their colleagues would be interested in attending a meeting to discuss these issues.
AP103 – PIWG members to let PC know if they want to be involved in user testing for the AFT
1. Welcome
MW welcomed everyone to the meeting.
2. Action Points from the last meeting
AW went through the action points of the last meeting.
AP091 – HMRC to review the process for calculating scheme sanction charge where the member has made a payment.
S18(1) Commissioners for Revenue and Customs Act 2005 makes it an offence for a Revenue and Customs official to disclose information which is held by Revenue & Customs in connection with one of its functions. Given this restriction we are exploring whether we can disclose information about a member’s payment of an unauthorised payment charge.
AP094 – PC to send an electronic version of the customer service strategy asap
Sent with the previous minutes and published on the internet at the end of March via the March Newsletter.
AP095 – PIWG members to let PC have any comments on the customer service strategy by 20th March
No comments were received.
AP096 – HMRC to respond on the outstanding issues raised at the 6th March 06 meeting as soon as possible
See Annex A which includes comments sent with previous minutes plus an update where applicable
AP097 – PIWG members to let PC know of any critical technical points which must be answered by 6th April 06
No further questions were received.
AP098 – APSS to consider putting something in RPSM to say it is good practice for practitioner to send copy of report/return to Scheme Administrator
This has gone forward as a suggestion for a change to the RPSM.
AP099 – PC to contact ED and Low Income Tax Reform Group (LITRG) to see what further support can be offered in this area
PC has spoken to Robin Williamson of the LITRG and has discussed their WebPages on Trivial Commutation. We have agreed a few small amendments on making the issue clearer, including “subject to scheme rules”. Also discussed if there is anything further HMRC can do to help people claim right amount of tax back. LITRG will come back to HMRC if anything further is required. PC is also contacting voluntary advice sector to see if anything further can be done to help individuals. HMRC have identified the problem around individuals being able to obtain the necessary claim form and are working on a solution.
3. Project Update
PC gave an update on the project.
General
Most of the work in the project has been passed to APSS during the course of April. There remains in Nottingham a small project team responsible for the remaining IT releases, compliance and communications. All questions should now be directed to APSS via their helpline or in writing, rather than direct to individual members of the simplification team.
Newsletter no 13 was published on 28th April 06.
The next APSS/Pensions Industry Joint Working Group (JWG) meeting will take place on 16th May at the ABI in London.
Guidance
The html version of the Registered Pension Scheme Manual (RPSM) which was last updated at the beginning of April, is now almost complete. There are a number of pages marked “under development” as these were still to be finalised at the time material was sent off for publishing.
The technical pages of Chapter 3 “Protecting Pension Rights” have been revised to reflect the final regulations. These are at present available only as a pdf given our ability to publish this more quickly than a html version. The existing html version of Chapter 3 has been temporarily withdrawn whilst it is being updated in order to prevent two different and potentially conflicting versions of guidance being in print at the same time.
We will sweep up the majority, if not all of the blank pages and the revisions to Chapter 3 in the exercise to incorporate amendments for the changes brought about by FB06. We expect the new material to appear at the end of the summer.
The CA booklets for contracting out are also being updated to reflect the changes at April 06. We have also been reviewing the DWP leaflets for individuals and have sent suggested amendments to DWP.
Forms
All the required forms for the moment have been posted on the HMRC Website along with completion notes. The remaining forms will become available as required. For example the Accounting for Tax (AFT) return will be available from 1 July this year. An updated draft version of the AFT has recently been put on the website.
4. How A-Day went for the Pensions Industry and APSS
There then followed feedback on how A-Day went for PIWG representatives.
John Gleadall
JG said that generally the day was fine. JG acknowledged that for 98/99% of the population, pensions simplification represented a simplification of the previous rules governing pensions. But he felt that the main workload was still to come as problems and new situations arose. In particular he highlighted problems with the role of the Scheme Administrator, as these were individuals who often would have no idea of what their responsibilities were. They were sending guides to all the Scheme Administrators of their insured money purchase schemes. They would also provide the data these Scheme Administrators would need for HMRC. He wasn’t sure how many would appreciate the responsibility they now had despite this. In addition they are producing two guides for people hitting the Lifetime Allowance a simple and a more complex guide.
He said they had pre-registered as an organisation for Pension Schemes Online, and the ID had been sent to the organisation they had not appreciated they could put something in the name or one of the address lines to ensure it got to the right part of the organisation. It had therefore taken some time to track it down.
JG was also concerned that the published guidance on Relevant Valuation Factors may not work in practice as some schemes have escalations at different rates for different periods of service for the same member.
JG said that he could find no process for reclaiming the overpayment of LTA charge and enquired whether HMRC would pay interest. He was particularly referring to cases where they had lost contact with the member.
AP 100 PC to identify if there is a process for reclaiming an overpayment of the LTA charge and advise accordingly.
JG also was waiting changes to the Provision of Information Regs as a result of the recycling legislation.
JG said there were problems with valuing Deferred Annuity Contracts for the purposes of the LTA. The legislation did not cater in full for these.
Barry Bolland
BB said that in his area only a handful of pension schemes had taken on board pensions simplification. Some pensioneer trustees of SSASs had resigned due to the liability falling on the Scheme Administrator, leaving the member trustee as the Scheme Administrator. Whilst EBS has provided guidance for these new Scheme Administrators and set up service level agreements, they did not know how often their assistance would be required. He had wanted to notify cessation as Scheme Administrator online but the functionality was not available yet. AW confirmed that this functionality would not be available until July 2006 and at present there was a paper process only to notify cessation as Scheme Administrator. This notification should be made within 30 days of ceasing to be a Scheme Administrator. Each trustee is a Scheme Administrator therefore each one has to notify they have ceased to be a Scheme Administrator.
There was a lot of uncertainty about investments for SSASs and SIPPS, in particular around unquoted shares and they were at the moment having to be more cautious until the legislation was finalised. There were also issues over the definition of market value. This is needed to provide valuations for LTA notifications and benefits.
BB said that the link to the Pensions Simplification pages has disappeared
AP101 – PC said he would look into the missing link to the simplification pages to find out why it wasn’t there.
BB also said there were problems with dealing with other companies, where the level of understanding across the industry was not uniform and they were asking for things not required.
DG said there was a problem with members who did not have protected scheme specific tax cash at A-Day who took early retirement, sometimes because of redundancy. Their total benefits were less than they would have got had they left on 5th April 2006, in particular because the tax free cash allowed was reduced.
Richard Hardy
RH said that for his company A-Day itself had been quite quiet, but since then has been very busy, in particular with queries. In hindsight, he felt it might have been more beneficial if industry had spent more time understanding the precise detail of the legislation in its early development and delivery, so that the practical issues in implementation could have been identified earlier and perhaps resolved.
They had offered to help clients become compliant and assist with what areas of legislation to adopt, but they had had a very low take up rate as many schemes wanted to wait for Modification of Scheme Rules Regs to be finalised.
He felt that the Newsletter was very useful, the PIWG had proved its worth and the RPSM looks like it will be excellent. RH said that with Pension Schemes Online it had taken them more than 2 weeks to find the token because they had not asked for it to be sent to a named individual.
RH said there were operational problems with refunds of contributions as the scheme member was now expected to account for the tax on the interest via Self-Assessment (SA). Also in DC schemes they were often being left with small benefits that could not be trivially commuted, but were too low to buy a pension. There was no easy solution to paying these, although they could be paid as an unauthorised payment. RH asked if there could be a de minimis limit to ease this problem.
RH said that because the PCLS had to be paid within three months of the crystallisation event, this created difficulties for them. For public sector schemes, provisional benefits are based on the known salary, but increases to salary are often backdated allowing an increase to benefits. To get round the problems with the three month rule, they were having an additional BCE which might cause problems for members who had taken benefits before A-Day.
Because of uncertainty over what was an authorised payment there was a need to be very careful on what was paid. A particular example was where an overpayment had been made to a member who had died, they used to write off rather than reclaim for estate, now that seemed to be an unauthorised payment.
RH said their priorities now were to sort out the use of online reporting, over 25% tax free cash protection, along with taking on board FB06 measures including making sure that tax free cash from AVCs was not caught by recycling.
RH said there had been lots of transfers overseas before ‘A’ day.
KG expressed concern that the industry would not be given appropriate support.
MW reiterated that HMRC did not want an incomplete/inefficient regime, and that HMRC would look to carry out a snagging exercise, once it had been given time to properly bed in. He said HMRC did not necessarily want to carry out ad-hoc corrections as it went along, but try and establish the main issues and unintended consequences before making changes, particularly if it required changes to primary legislation. He said that as simplification was now business as usual HMRC remained committed to providing support and ongoing dialogue with the pensions industry.
MA said there were also problems with bridging pensions that historically exceeded the 125% within FB06, and these could result in unauthorised payments.
Eleanor Dowling
ED said they had experienced difficulty using the online service as they had not asked for the Practitioner ID to be sent to a named individual. Also they had not been able to change the address. Another problem was that they couldn’t view all schemes they administrator, but only 5 on a page at a time and there was no printable list of all their schemes.
Also returns such as the AFT and PSR were still in draft which made finalising systems difficult. She also felt that the practitioner declaration on the forms confirming that the Scheme Administrator had approved the content and submission to HMRC and providing their details could lead to delays particularly obtaining their ID’s and email addresses.
AW explained the Scheme Administrator was legally responsible for these forms and their content and if there were any problems with them HMRC would go back to the Scheme Administrator. This responsibility could not be delegated. It was therefore necessary for HMRC to know on which Scheme Administrator’s behalf the practitioner had filed the report/return online and that the Scheme Administrator named had approved the content of the return/report as well as its submission to HMRC. The only mandatory fields required in providing the Scheme Administrators details were their name and address the ID and email address were optional.
ED said overall the changes for DC schemes were positive, including drawdown, lifetime annuities and new flexibility’s, but there were problems with DB schemes. In particular she highlighted that trustees were using the Modification of Scheme Rules regs not to make changes to the scheme rules.
Jayne Banner
JB said APSS will continue to answer questions but would encourage users to self-serve first if possible. An e-mail channel for questions would also be available shortly. She said she was committed to delivering the customer standards already published.
A-day itself was quiet in APSS. Pensions Schemes Online worked for both internal and external users at A-day, with only a few teething problems being experienced that have since been resolved. The helpline had been very busy with over 4000 calls. Of these, 82% had got through. A lot of calls were from individuals. There were also a lot of calls about the activation tokens, how to find forms, how to access Pension Schemes Online and questions about trivial commutation. Additional staff have been drafted in to help. Where the questions were not straightforward they were, and would continue to be, passed to technical specialists.
To date we have had very few new scheme registrations, either via paper or online, but a lot of applications for approval under the old rules, which had not been anticipated. A number of LTA notifications were being rejected mostly because they were dated before A-day, but we were trying to help individuals resubmit the forms as soon as possible, by phoning them particularly where the member intended to retire shortly.
JB said that the online helpdesk had had 774 calls, most of these concerned logging on, registration or navigation issues.
RH asked if the APSS helpline could remind individuals that much of simplification was “subject to scheme rules”
5. DWP/HMRC Liaison
MAn advised that there had been a number of comments about HMRC/DWP liaison on the PIWG survey and the project evaluation being carried out by Policy.
Some issues have already been highlighted and others such as the timing of the Pensions Act and Finance Act were out of our hands. But she said she was interested in hearing about any major unresolved issues in joint working between the two departments and whether a separate meeting was required to discuss these.
AP102 – PIWG members to let PC know of any outstanding DWP/HMRC issues by 5 June 06, and whether they or any of their colleagues would be interested in attending a meeting to discuss these issues.
6. PIWG Survey
JBM presented the results of the latest PIWG survey
7. AOB
AW said that HMRC were looking to carry out user testing of both the online and paper versions of the Accounting for Tax return in the week commencing 12th June. These would be in separate sessions. If anyone wanted to be involved could they get in touch.
AP103 – PIWG members to let PC know if they want to be involved in user testing for the AFT
The next meeting of the Pensions Industry Working Group will be 2-4pm on Thursday 20th July, in Room 2/18 100 Parliament Street, London
Annex A
Outstanding Issues from PIWG 6th March 2006
AP091 calculating the scheme sanction charge where the member has made a payment.
S18(1) Commissioners for Revenue and Customs Act 2005 makes it an offence for a Revenue and Customs official to disclose information which is held by Revenue & Customs in connection with one of its functions. Given this restriction we are exploring whether we can disclose information about a member’s payment of an unauthorised payment charge.
3. Will it be a requirement to apportion block
transfer values between the individuals being transferred?
As the answer given at the PIWG on 6th March caused
concern, we referred this back to Technical and
Policy and they confirmed the original answer as
follows:
"The annual allowance test is by reference to the opening and closing values in the pension input period. The opening value in a defined benefits arrangement will be calculated as 10 times the annual rate of pension at that time. If a transfer-out then takes place, sub-sections (4) and (5) of s236 FA 2004 provide that the transfer is nonetheless included in the closing value. Although sub-section (5) refers to the aggregate of the sums and assets transferred being added, this is effected by an adjustment to the closing value. The closing value will be in the form of 10 times the annual pension at that time, as provided by s234(5). The closing value, without the provision of sub-section (5), if all the accrued rights have been transferred, would have been nil. But with the adjustment by virtue of the addition of the aggregate of the sums and assets transferred, the closing value is restored and is able to be expressed as 10 times what the annual pension would have been. The difference ensures that any increase in the accrued rights between the opening value and the date of the transfer are properly tested against the annual allowance.
The adjustment for a transfer in a cash balance
arrangement operates in a similar way as provided
under s232.
The above will equally apply where a block transfer
takes place. Although the calculation of the transfer
value may not pin-point the amount relating to each
individual member, the amount of accrued rights
for each member as the opening value and closing
values will nonetheless still be capable of being
expressed as 10 times the annual pension entitlement.
And this can be done without the need to attribute
the elements of the block transfer to each individual.
The annual allowance provisions apply similarly
in relation to a defined benefits arrangement where
a transfer has been received. But in that instance
the transfer will be deducted from the closing value".
4. Can you confirm that the pension that may be commuted to pay a LTA charge can include any attaching contingent dependant's pension?
A member’s scheme pension is not required to be reduced in order to pay the LTA charge. Instead, the funds to pay the charge may be found from other resources within the scheme. Schedule 36 paragraph 9 makes clear that a reduction of the scheme pension will not affect the amount crystallised under BCE 2, which will still relate to the gross pension. But if the member’s scheme pension has not been sufficiently reduced in accordance with normal actuarial practice, or other rights, including dependant’s pensions, are reduced instead, then a ‘scheme-funded tax payment’ will arise under s215(9). This will be part of the chargeable amount for the LTA charge.
6. The formulae in the Uprating Percentages Regs (SI 2006/130) do not work where the period straddles normal pension age. Increases for late payment under the preservation regs (see Reg 2(2)(d) of SI 2006/130) will be in addition to increases for other reasons and so the linear formula in reg 2(3) Step 4 cannot be applied. Can we work on the assumption that the regulation 2(2)(d) increase can be used multiplicatively with other increases?
The matter should be covered by regulation 2(4)(b). Under this provision, revaluation percentages which overlap may be taken as the higher percentage, and then a linear calculation made in the normal way.
8. When will the draft Finance Bill clause on PCLSs from DC schemes where scheme pensions are purchased be available? We have built our system for calculation of maximum lump sum on the basis that where there are both DB and DC arrangements, the example in RPSM 09104280 will not be amended. Please can you confirm this?
This was published as PTS Measures on16th March 2006
9. The calculation of the annual allowance when a full transfer out is made during the year from a DB scheme. A problem would arise where the member was relatively old and has a high transfer value factor. BW had written to HMRC on this point
The original letter had been treated as a response to the regulations. SPSS Policy responded to BW and this point was covered within the issue at point 3 above.
10. Unauthorised payments of lump sums at retirement. There was an issue where schemes gave members an entitlement to a lump sum from commutation of pension on retirement calculated on 3n/80 of final pensionable salary formula. This may result in unauthorised member payments being made for many years in the future. BW had written to HMRC on this point.
This was discussed at the last JWG meeting. It was agreed that we would introduce provisions under the modification of scheme rules regulations. This has been done and should address this issue. If not please contact PC
11. Would contributions deducted in March but not paid until after A-Day result in enhanced protection being lost for those who were registering for this protection?
When a payment is made is a matter of fact, those that are made before A-day will not result in the loss of Enhanced Protection, those made after will. Employee contributions that are deducted from the payroll before A-day but not paid into the scheme until after A-day would not result in enhanced protection being lost.
12. What guidance is available where the LTA charge is deducted in error?
This can be found in the RPSM.
14. A question was raised with regard to bridging pensions. PC said this was being dealt with and an announcement would be made shortly.
This was announced in the note on further FB 06 measures announced on 7th May 2006
