Pensions
Industry Working Group - 6 March 2006
Meeting notes
Location: Room 2/39 100 Parliament Street
HMRC Attendees
Mike Wells (MW) (Chair)
Jo Begg-McBrearty (JBM)
Jayne Banner (JB)
Catherine Hunter (CH)
Ann Walker (AW)
Paul Cottis (PC) – Minutes
Pension Industry Attendees
Ken Macintyre (KM) –representing the National
Association of Pension Funds (NAPF)
Malcolm Winter (MW) – representing the Society
of Pension Consultants (SPC)
Ian Young (IY) – representing Institute
of Chartered Accountants England & Wales (ICAEW)
Barry Bolland (BB) - representing the Association
of Member-directed Pension Schemes (AMPS)
John Gleadall (JG) – representing the Association
of British Insurers (ABI)
Brian Wilson (BW) – representing the Association
of Consulting Actuaries (ACA)
David Phillips (DP) – representing the Association
of Member-directed Pension Schemes (AMPS)
Diana Geneen (DG) - representing the National
Association of Pension Funds (NAPF)
Eleanor Dowling (ED) - representing the Chartered
Institute of Taxation (CIOT)
Sean Worth (SW) - representing the Association
of British Insurers (ABI)
Mike Abrams (MA) - representing the National Association
of Pension Funds (NAPF)
Action Points arising:
AP091 – HMRC to process for calculating scheme sanction charge where the member has made a payment.
AP094 – PC to send an electronic version of the strategy asap
AP095 – Pensions Industry Working Group (PIWG) members to let PC have any comments by 20th March
AP096 – HMRC to respond on the outstanding issues above as soon as possible
AP097 – PIWG members to let PC know of any critical technical points which must be answered by 6th April 06
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
AP099 – PC to contact ED and LITRG to see what further support can be offered in this area
1. Welcome
MW welcomed everyone to the meeting
2. Action Points from the last meeting
CH went through the action points of the last meeting
AP086 – PIWG members to let PC know if they want to be involved in user testing for forms
Thank you for the responses, the first part of user testing for the forms is taking place this week.
AP087 – PC to look into providing links to PDF versions of regulations as soon as they are laid
PDF versions of the regulations are available on the HMRC website at http://www.hmrc.gov.uk/si . We are also looking into the best way of ensuring that you can access all the final versions from our Pensions pages
AP088 - The next newsletter to include an article about restricting access rights to pension scheme records
This was included in the February Newsletter - Practitioner organisations might like to consider making use of the facility available through the Government Gateway www.gateway.gov.uk for setting up ‘Assistants’ for the Pension Schemes online service. Each Assistant created is allocated an individual ID which can be deleted if the Assistant subsequently moves on.
AP089 – PIWG members who want to be involved in further development of the Compliance regime should let PC know
Thank you for the responses, Les Warner is now taking this forward.
AP090 – PIWG members to let PC know if they want to be involved in a meeting to look at customer service standards and work priorities going forward.
To be discussed at this meeting
AP091 – LW to confirm process for calculating scheme sanction charge where the member has made a payment.
It is up to schemes to demonstrate that the member has made the payment and so potentially reduce their tax liability.
Several industry representatives felt that this was not acceptable and did not address their concerns. JBM said she would investigate this further and get back to the PIWG. This action point was therefore carried over.
AP092 – PC to look into putting something into the newsletter on bulk transfers.
Included in February Newsletter.
AP093 - PIWG members to let PC know if they think the volume of 300 RAS registrations per year is significantly out.
No comments received
3. Project Update
PC gave an update on the project
Forms
User testing for some of the forms is taking place from 6th-8th March. All the forms as detailed in Newsletter No 10 will then become available at A-Day, with the exception of the LTA Enhancement forms which will be published next week.
Guidance – The Registered Pension Scheme Manual
The final amendments to appear on the internet (and in pdf version) before April 6 have been sent to publishers . All changes will be identified using the link on the main web page for the manual or will be announced as soon as they become ready for downloading. As we have previously announced there have been suggestions for amendments that we have not been able to take on board before A Day. Wherever possible these will be incorporated at the first opportunity we have to revise the manual. We still welcome comments on the manual and suggestions for improvements.
E-payment
At the January meeting we discussed whether electronic payments should be made mandatory from A-Day and considered whether there were any groups that were not represented at the meeting that might have objections. No comments on this were raised, either at the meeting or following distribution of the minutes.
We have considered this further and given that we do not anticipate that many people will want to make payments outside HMRC’s standard publicised payment channels for our on-line services and the postponement of the requirement to file reports and returns online we have decided not to seek mandation of electronic payments at present. PC emphasised that it will be much easier to make payments electronically at the same time as the AFT is completed online.
When an AFT return is sent in, the Scheme Administrator will be sent a charge reference which should be included in the payment details.. Without this, a cheque will have to be matched manually to the charge which could take some time and could lead to an unnecessary reminder for outstanding tax. When the AFT is filed online, the charge reference is raised automatically and is immediately available to be included with the payment.
IT
There was a very good response to the pre-registration exercise and around 14,000 schemes will be linked to a scheme administrator and practitioner when Pension Schemes Online goes live.
A small group of external users will be given the opportunity to look at the system in Newcastle on 16 and 17 March. Feedback from these sessions will be used in identifying and communicating any areas of difficulty that people find in using the online system. The feedback will also be useful for identifying future possible development of the system (but changes will not be possible for the April release).
Policy
1. A fifth tranche of 3 regulations was laid 1st March 2006 and will come into force 6th April 2006. To date we have laid before Parliament 33 regulations, a total of nearly 80%. We expect to lay the remaining important regulations in the next week.
We are revising the website so that all the laid regulations and their SI’s will be listed in one place with a link to the HMSO website.
2. We published on 3rd March updated tables for use in calculating the maximum income from unsecured and alternatively secured pensions in the new simplified tax regime for pensions which comes into effect on 6 April 2006
3. We have terminated our existing reciprocal agreements with the Republic of Ireland, Jersey, Guernsey and the Isle of Man (IoM) for the transfer of pension rights with effect from 6 April 2006. From then, overseas transfers to these four countries will not be subject to HMRC discretion, and individuals will not have to meet any conditions as is the case under the current tax rules and the reciprocal agreements. The new rules will make it easier to make transfers than the existing bilateral arrangements and all parties to the agreements have therefore agreed that they should be terminated.
4. Customer service post A-Day and prioritisation of work
JB presented a draft of the Customer Service Strategy for Registered Pension Schemes.
She said that from A-day APSS will no longer have the same means of discretion. In view of this the office will be encouraging customers to self-serve where the guidance has been published in order to support them in doing this. APSS will not be staffed to answer every question, so by April 07 they will be responding to telephone and written enquiries by first checking with customers they have tried to self serve by using the guidance.
She also recognised there were new circumstances not catered for by the guidance, and for these APSS would be adopting the same process as other parts of the Department, and using COP10. Customers will be asked to set out all the facts in order to gain a ruling on a particular transaction or circumstance.
There will also be an e-mail template on the internet pages for customers to use.
Various comments were raised
- When will "check later" happen for "process now check later" items
- Will LTA notifications be acknowledged and certificates only issued after "check later" or will certificates be issued and still be subject to checks – HMCRC confirmed that certificates will still be subject to checks after issue (The industry were concerned they would be relying on information to pay tax free lump sums which might later prove to be wrong. HMRC suggested they would have acted in good faith and could use this in their defence.
- Lots of insurance companies were resigning as trustees for EPPs and SSASs and consequently potential problems with remaining trustees who may not be aware of their responsibilities
AP094 – PC to send an electronic version of the strategy asap
AP095 – PIWG members to let PC have any comments by 20th March
5. Readiness for A-Day
JBM said that early indications from the latest PIWG survey showed that most people consider they are ready for A-day. She asked PIWG members to let her know what specific operational issues they might have that would prevent them from being ready on time. The following were raised:
1. Deferred pensioners with entitlement to pension
at Normal Retirement Date. Large numbers of such
deferred pensioners exist for almost all schemes
of any size. Was it correct that HMRC are not
interpreting "entitlement" literally
as NRD but as the date on which the first payment
to the member is made after he has been traced.
Thus, if this is after 3 months after NRD the
member has not lost his PCLS entitlement.
PC confirmed this was correct
2. Are HMRC thinking of making a regulation under
s164(f) to make back-payments in this situation
as authorised payment.
PC confirmed this was being drafted.
3. Will it be a requirement to apportion block transfer values between the individuals being transferred? The norm where identical benefits are being granted in the new scheme is that individual apportionment is not made. However, under the Annual Allowance charge requirements, individuals will need this information to complete their SA tax returns. This links to an outstanding request that the Annual Allowance sections of FA04 are amended to exempt block transfers.
PC said that 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.
BW felt that this did not fully support the legislation and PC promised to come back on this after consultation with colleagues.
4. Can you confirm that the pension that may be commuted to pay a LTA charge can include any attaching contingent dependant's pension? Paragraph 9 of Sch 32 is ambiguous on this point, but the Modification of Rules of Existing Schemes Regs at reg 8(1) appears to have been amended to permit this (this change was requested by the APL), referring as it does to "in respect of a member". However, the final sentence of reg 8(1) could be read as saying that contingent dependants' pensions may not be commutable as contingent benefits do not crystallise, as such.
PC said he would get back to the PIWG on this point
5. Views of legal advisers are mixed as to whether the separate provisions of the Modification of Rules of Existing Schemes Regs can be disapplied individually or whether it is an all or nothing dis-application.
PC confirmed it was all or nothing
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?
7. When will the result of the IHT consultation be announced?
HMRC referred to the previous PIWG meeting where it was advised that the matter was being considered by Ministers.
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?
PC said this would be as soon as possible but could not give a definite date.
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
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
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?
12. What guidance is available is available where the LTA charge is deducted in error?
14. A question was raised with regard to bridging pensions. PC said this was being dealt with and an announcement would be made shortly.
15. One representative advised that his firm would be using an outside IT supplier who had not contacted them with regard to the software they would be installing in time for A-Day.
16. One representative had said she had recently attended a seminar where many small schemes were not very advanced in their preparations for A-Day.
17. One member noted that his firm had identified a problem over opting out of limiting the lump sum to 25%. He said that his firm would be unable to comply with the legislation at A-Day as they would be unable to show whether a scheme had paid more or less than that 25% lump sum and whether or not it was contained within the rules. JBM suggested that if this gave rise to general compliance issues, it might be advisable for the point to be discussed with Les Warner leading on compliance.
AP096 – HMRC to respond on the outstanding issues above as soon as possible
AP097 – PIWG members to let PC know of any critical technical points which must be answered by 6th April 06
6. Communicating with customers post A-Day
CH said that the PIWG meetings, newsletter articles and FAQs will continue for the time being. These will to be used to seek customer views on:
- Pension Schemes Online
- Operational issues
- How people are finding the new regime
- What support the industry may need.
CH advised that the WebPages will be changed shortly after A day. Post A-day the simplification pages will become the main pages with the current legislation sitting behind this. Obsolete information will be deleted and the APSS front page will list the 7 most frequently used forms. The pages will be easier to navigate with all the relevant information up front.
CH said that for IT there will be a
- link on the HMRC front page “Do it online” to Pension Schemes Online
- “service availability” page on the HMRC front page that willprovide a link to the Pension Schemes Online service
- a link to the “do it online” pages from APSS website.
If there is downtime for a while (probably at least 2 hours) we are looking at putting a message to appear on the “pensions do it online” page before you need to input your ID and name etc saving the customer wasting their time. 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. We may also provide information on the Pensions WebPages within one of our Newsletters..
7. Unauthorised practitioners
AW explained that feedback had been received which indicated some people were confused about the roles of authorised and unauthorised practitioners. They were under the impression that HMRC had to have an authority from a Scheme Administrator before it would accept submissions online from practitioners, which is not the case. It was felt it might be helpful to refresh certain messages. Firstly less than 10% of schemes will need to file Event Reports, Accounting for Tax Returns and Pension Scheme Returns.
Secondly those Scheme Administrators that need to submit one of these forms can have them filed online on their behalf by a Practitioner irrespective of whether HMRC has an authority from the Scheme Administrator or not. Thirdly the online service has been designed to make it as easy as possible to file as much information as possible online whilst retaining the integrity and security of that information.
AW explained that HMRC will always know who is submitting information to it and therefore a practitioner does not need to be authorised to submit information to us.
Why then do HMRC require authorities from Scheme Administrators?
The information held by HMRC for registered pension schemes belongs to the Scheme Administrator. Therefore HMRC cannot allow anyone to view information online held by about a scheme, or provide information about a scheme, or correspond about a scheme’s tax affairs without the authority of the Scheme Administrator. To sum up
- Less than 10% of Scheme Administrators will need to submit reports/returns. If they do they can have a Practitioner file them on their behalf.
- HMRC will accept information from anyone because it will know who the submitter is.
- HMRC will not give information to anyone about a registered pension scheme’s tax affairs without the authority of a Scheme Administrator
JG asked about acknowledgements. AW said the acknowledgement would go to the sender, rather than the Scheme Administrator. The Scheme Administrator would be able to view online what information has been submitted on their behalf.
Concern was raised over false reports, AW explained that the submission made by a Practitioner required a declaration from the Practitioner that the content of the report/return and its submission to HMRC had been approved by the Scheme Administrator. They had considered there might be a risk but it was minimal unless of course the attendees knew different. It was explained their understanding was not different it was more about Practitioners possibly filing by mistake not on purpose reports/returns on behalf of the wrong Scheme Administrator.
AP098 – APSS to consider putting something in the Registered Pension Scheme Manual and whether it might be possible in the future to provide a message to the Scheme Administrator a report/return had been filed on their behalf
8. AOB
ED raised the question of how someone could obtain a refund where too much tax had been suffered following the trivial commutation of a pension. She said that LITRG had approached her with the suggestion that they provide a link to or from their website to assist them in completing their claim for tax suffered.
AP099– PC to contact ED and LITRG to see what further support can be offered in this area
The next meeting of the Pensions Industry Working Group will be 2-4pm on Thursday 4th May, 2/39, 100 Parliament Street, London
