Pensions Industry Working Group - 17 January 2006

Meeting notes

Location: Room 2/18 100 Parliament Street

HMRC Attendees

Mike Wells (MW) (Chair)
Jo Begg-McBrearty (JBM)
Jayne Banner (JB)
Catherine Hunter (CH)
Les Warner (LW)
Graeme Morgan (GM)
Paul Cottis (PC) – Minutes

Pension Industry Attendees

Ken Macintyre (KM) –representing the National Association of Pension Funds (NAPF)
Richard Hardy (RH) – representing the Society of Pension Consultants (SPC)
Charles Milne (CM) – representing the Association of Independent Financial Advisers
(AIFA)
Ian Young (IY) – representing Institute of Chartered Accountants England & Wales (ICAEW)
Stephen Ward (SW) – representing the Chartered Institute of Taxation (CIOT)
Barry Bolland (BB) - representing the Association of Member-directed Pension Schemes (AMPS)
John Gleadall (JG) – representing the Association of British Insurers (ABI)
Cliff Vidgeon (CV) – representing the Institute of Payroll and Pensions Management (IPPM)
Brian Wilson (BW) – representing the Association of Consulting Actuaries (ACA)

Action Points arising:

AP086 – PIWG members to let PC know if they want to be involved in user testing for forms

AP087 – PC to look into providing links to PDF versions of regulations as soon as they are laid

AP088 - The next newsletter to include an article about restricting access rights to pension scheme records

AP089 – PIWG members who want to be involved in further development of the Compliance regime should let PC know

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.

AP091 – LW to confirm process for calculating scheme sanction charge where the member has made a payment.

AP092 – PC to look into putting something into the newsletter on bulk transfers.
AP093 - PIWG members to let PC know if they think the volume of 300 RAS registrations per year is significantly out.

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

AP074 JBM to provide an update on the timetable for the laying of regulations
MW provided an update on this action point later which added to his e-mail to PIWG members of 16th December.

AP 075 GM to clarify if the online AFT return will be printable from July 06.
There will be a facility to take a 'printer friendly' copy of the return after it is submitted, but not before.

AP 076 PIWG members to let PC have thoughts on why it might not be feasible to proceed with e-mandation for payments at this stage
No comments on this have been received.
JBM asked if we could assume that everyone was content that electronic payments were made mandatory and if there were any groups that were not represented that might object. No further comments on this were raised.

AP 077 GM to clarify how Scheme Administrators and Practitioners would get the new Pension Scheme Tax Reference after A-day.
Answer published in Newsletter no 8

AP 078 JBM to look into and report back to the PIWG the position of National Insurance Contributions and unauthorised payments and how these would be reported and whose responsibility they were.
We will be providing revised NIC Regulations on the NIC treatment for contributions and benefits from registered pension schemes so that they will have the same treatment as approved schemes do currently.

The NICS regulations will also be changing the NIC treatment of what was FURBs now EFRBS. There was concern that the draft regs didn’t address unauthorised payments from a registered pension scheme. The current treatment of unauthorised payments from an approved pension scheme are not NICable and it is our intention that the new regulations will continue that treatment. All benefits from registered pension will not be NICable.

AP 079 CH to let PIWG members see copies of factsheets.
Sent with PIWG minutes on 7th December

AP 080 PC to provide PIWG members with the position on life cover and enhanced protection.
Article in Newsletter No 8

AP 081 PIWG members to let PC have their top outstanding issues. PC would pass these onto MW as well as Policy and Technical as appropriate.
Responses received from SPC, ACA and CIOT. MW will come back to later.

AP 082 SD to let PIWG members know if PAYE applies immediately to RAC annuities coming into payment after 5 April 06
Answered 6 December 06 -The obligation to make PAYE deductions from payments of annuities paid directly out of a Retirement Annuity Contract comes into force from 6/4/07 only, regardless of when the annuity payments start.

AP 083 PIWG members to let SD have any comments on the suitability or practicality of delivering the message and using the draft wording provided.
None received to date

AP 084 SD to produce more polished version of TrC note, for publication on next available Simplification Newsletter.
This should be published in the Newsletter due at the end of January

AP 085 SD to advise whether or not the repayment claim form could be sent with the notification of the trivial commutation payment to the member.
The form will be multi- option, tailored to meet the circumstances of particular individuals, dependant on their sources of income etc. Therefore HMRC prefer to serve the form themselves, after contact from the taxpayer.

3. Project Update

PC gave an update on the project.

Policy
There have been two related consultations that have recently closed . (23 and 31 December)

1. The Treasury consultation on the establishment and regulation of schemes
2. HMRC consultation on GAD tables

Thanks were given for the responses. We are currently analysing these, with a view to putting recommendations to Ministers possibly next month. A Government announcement will shortly follow that.

Registration

We are currently producing the final versions of forms to be used by our customers from 6th April 2006. As we would like to make these forms as easy to use as possible we are asking for volunteers to take part in some usability testing events. Further information was attached to the draft agenda PC sent out. Volunteers to get involved were requested.

AP086 – PIWG members to let PC know if they want to be involved in user testing for forms

To date we have received very few completed supplementary pages PS252 with the applications. Applications for approval under the current rules can be received up to 30 June 2006. However, from 6 April 2006 before we can capture details of the scheme on to the new pension schemes database we will first need to set up the details of the Scheme Administrator as defined in paragraph 4 of Schedule 36 Finance Act 2004.

Consequently after mid March, for any schemes which do not submit a supplementary page PS252 with their applications for approval we will use details of the Scheme Administrator as defined in section 611AA(8) ICTA 1988 as shown at section H of the application form. This means that if the Scheme Administrator post A day is not the same person as shown on the application form then it is essential that a PS252 accompanies the application for approval. PC said that we wanted to encourage people where necessary to use this form.

Communications

Since the last meeting we have published two further newsletters with further information on online services plus a number of articles including transitional protection, extra statutory concessions and project updates. We intend to continue with these newsletters beyond A-day.

We are continuing to attend and get further requests to speak at various seminars etc and are happy to support these events where appropriate(please get in touch with PC).

We will over the next few months, be concentrating on delivering the key messages to individuals about the benefits of pensions tax simplification along with reminders for those individuals potentially affected by transitional issues.

4. Top Issues

MW explained that at the last meeting of the group in November, concerns were raised about the timetables for finalising a number of issues. Members were invited to let him know individually of their top issues so that as far as possible we could dovetail our timetables with their key priorities. We have had responses from three of the organisations represented at the PIWG (CIOT, ACA, SPC) and one other body (Aries). In total 24 issues were raised of which 8 emerged as of concern to most or all which we would talk through today. MW said that we will be responding to each individual organisation on all the points that they raised.

a. Finalisation of the pension taxation regulations to apply from April 6th 2006, in particular the Modification of Rules of Existing Scheme regulations.

MW wrote to PIWG members on 16 December to let them know that the first batch of 11 regulations representing some 25% of the total regulations was laid the previous day. We are aiming to lay the vast majority of the remaining regulations by around 10 February. HMRC Solicitor and Policy met with representatives of Association of Pension Lawyers in December to discuss representations on revised modification Regulations and following that our Solicitor is now drafting a revised version which we aim to have laid by the end of January.

b. Completion of the technical part of the Registered Pension Schemes Manual (RSPM) and a reliable procedure for highlighting changes to the RSPM

The Technical chapters of the guidance are now 95% complete and will be completed by April. All the technical chapters are now available to be read on the internet in either HTML or pdf .

We will create a better procedure for highlighting changes by revising The Amendment Log that is already on the internet to make it more useful by referring to the specific page numbers that have been amended rather than just the chapter within which the amendments are contained.

BW asked if it was possible to have access to copies of regulations as soon as they were laid

AP087 – PC to explore whether links to PDF versions of regulations can be provided as soon as they are laid

c. P60s - Confirmation of the requirements for annual disclosure for lifetime allowance percentages, and secondly confirmation of any agreed wording to be used, and clarification of the requirements in the information regulations.

Confirmation for the first part lies with finalising the info regs. We are continuing to receive representations on these regulations and we met with industry reps in December following which further changes may be needed. A revised draft is now being considered and our aim is to lay this consistent with the timescales set out above for the remaining regulations.

In terms of the second point, following industry representations MW confirmed that there will be no prescribed form of wording with regard to what should be included in the disclosure and certainly the information regs will not require a particular form of words.

d. Obtaining definitive text for the Finance Act 2006 clause on revision of the lump sum formula for PCLS from money purchase schemes and proportioning of lump sum rights at April 6th 2006 between money purchase schemes.

We are awaiting draft Finance Bill clauses from Parliamentary Counsel. We aim to publish as soon as available. This is however one of several Finance Bill clauses on which we are working and others include recycling and residential property which we had assumed had higher priority for early sight. But if this assumption on priority order is wrong please tell us now.

On proportioning of pre-commencement tax-free lump sum rights which exceed 25% between money purchase schemes in respect of the same employment, RPSM pages 3105540 onwards provides further information.

e. Inheritance Tax and alternatively secured pensions – will it apply and how will it work?

MW said he was conscious of the importance attached to sorting this out and a lot of work has been going on to bring forward measures to be effective from A-day. He said he could not be precise about timing but Ministers are aware of the Industry’s wish to have clarity as soon as possible and we will do our best to meet that.

f. Guidance on employer contributions regarding the wholly and exclusively test, particularly in reference to large employers with multiple companies

Guidance has been published today on the HMRC internet and was included in the handouts. The following link will take you to the guidance on the internet. http://www.hmrc.gov.uk/practitioners/emp-contributions.htm

g. Clarification on the position of life assurance premiums where Enhanced Protection applies

This was dealt with in Newsletter No 8. We have subsequently received a number of queries on this which we will reply to individually and the RPSM guidance on transitional protection is being amended to explain in detail how enhanced protection is affected by life cover.

h. Treatment of NICs on unauthorised payments

The NIC’s regulations will provide for a disregard for unauthorised payments from registered pension schemes.

5. Pension Schemes Online

GM said that the development and testing for Pensions Schemes Online for the April release was going ahead to plan.

He then talked through the user registration screens that needed to be followed at A-day, once a user had received their Scheme Administrator or Practitioner ID. He also showed screens of the other functions that would be available at A-day.

There was some discussion about user access. GM said that there would be a facility for users to authorise a sub user who would have the same access rights as the main user but would have their own ID and password. This would be done via the government gateway. Further details on this will be provided in due course.

AP088 - The next newsletter to include an article about restricting access rights to pension scheme records

It was pointed out that as the initial responsibility to authorise a practitioner lay with the Scheme Administrator and for some schemes such as EPPs the Scheme Administrator as potentially a self employed person, would not be aware of the changes, there was little the industry could do to get these people to authorise them on line and/or submit reports/returns if required. It was confirmed that until e-mandation, any such authorisation could be done via the paper form.

6. Compliance

LW explained the APSS compliance strategy post A-day. He explained that APSS tends to currently focus on small self administered schemes but responsibility for compliance around large schemes sits with local offices .The approach to compliance work varies because responsibility is spread across a number of different offices. For insured schemes, responsibility is with APSS but we have tended to regard these schemes as low risk and have not carried out compliance work in respect of them.

From April 2006 our intention is to make enquiries into schemes regardless of type, with a risk based selection system wherever possible. Responsibility for compliance work in respect of all schemes, including large occupational schemes, will move to APSS.
To help with the risk assessment process we will issue notices requiring pension scheme returns and audited accounts to be submitted in appropriate cases. APSS will be responsible for risk assessing the information, deciding whether an enquiry is needed and if so whether that enquiry should be by way of an audit or a more traditional enquiry conducted by way of correspondence and meetings.
For small schemes and SIPPs we will use the Pension Scheme Return. It should be submitted on-line and we will be able to interrogate our new IT data base and select those schemes that appear to be high risk for enquiry.
For large schemes we will have audited accounts and will use those to help inform us as to whether to make enquiries. It is likely that the information in those accounts will not be sufficient by itself to identify risk in which case a random element might be needed in the selection of cases, particularly in the early years of the new regime.
For all those schemes where Event Reports (ER) and Accounting for Tax (AFT) Returns have been submitted we will use that information as well and there could be occasions where, for instance, it is the absence of an AFT that triggers the enquiry.

We are developing our risk assessment rules. Our enquiry programme won’t be fully operational until after April 2007 when PSRs, ERs & accounts start to be submitted.

In the year from April 2006 enquiries are likely to focus on new registrations and notifications from individuals to protect LTA. As far as registrations are concerned we are likely to select cases at random and the enquiries are likely to be fairly low level, mainly looking at basic documentation. For LTA notifications we expect to have a more focused approach, probably with some regard to the size and complexity of the funds underpinning the notifications. Where those funds include assets that have valuation issues in them, we are likely to check at least some of them.
Our intention, after Simplification, will be to carry out enquiries into a number of insured schemes. Because we will have no detail about them, except when an ER or AFT has been filed, we expect to select at random.
There are also contracts that are treated as registered schemes from 6/4/06 without the need to go through a registration process. RACs and S32 buy-outs are examples. We would like to work with the industry to obtain more details about these schemes as without this information enquiries would probably be on a random basis.
LW explained that we wanted to talk to the industry about our plans and how we might expect to identify high risk cases. Also we would welcome any input into developing our risk assessment strategy.

AP089 – PIWG members who want to be involved in further development of the Compliance regime should let PC know

7. Customer service standards and prioritisation of work

JB said that we wanted to publish new service standards. As a starting point she hoped APSS would be able to maintain the existing standards eg on dealing with post but there might be an opportunity to improve some. Because, at A-day, the IT would not provide full functionality, which meant that we would have to provide for manual as well as electronic processing, some items might take longer to handle. Whilst we would try and ensure staff were available based on the volumes we predict, it would be really helpful to consider with the industry viewed as their priorities in terms of work post A-day. JB recognised some items might be more urgent than others eg registrations and LTA protection claims if a benefit cyrstallisation event was near, and it would be useful to agree how these might be identified.

We would therefore like to have a meeting with interested parties to discuss this.

AP090 – PIWG members to let PC know if they want to be involved in a meeting to consider customer service standards and work priorities going forward.

8. AOB

BW asked about the scheme sanction charge and how this would be calculated as they would need to know what the member has paid.

AP091 – LW to confirm process for calculating scheme sanction charge where the member has made a payment.

CH said that we would like to bring forward the March PIWG meeting and hold a further meeting in April to help with any problems that moving to the new regime might cause. It was agreed that this was a good idea. She asked if members wanted to continue with the forum in the immediate future and it was agreed that the PIWG would continue.

RH asked if the next newsletter could clarify bulk transfers

AP092 – PC to consider an article in the newsletter on bulk transfers.
PC said that APSS were basing staffing and IT capacity on a volume of 300 registrations for relief at source per annum. We think this may be under-estimated. The reasons are that we understand deferred annuity contracts may start accepting contributions from 6 April 2006 which would be under RAS. Also Executive pension plan contributions may move from the net pay scheme to relief at source.
We would appreciate your views on how significantly the volume of 300 is likely to increase.
AP093 - PIWG members to let PC know if they think the volume of 300 RAS registrations per year is significantly out.

The next meeting of the Pensions Industry Working Group will be 2-4pm on Monday 6th March, Room 2/58, 100 Parliament Street, London