Guidance

Pension schemes newsletter 119 – April 2020

Updated 2 June 2020

1. Temporary changes to pension processes as a result of coronavirus (COVID-19)

In Pension schemes newsletter 118 we provided guidance on temporary changes to some pension processes to help scheme administrators during the coronavirus (COVID-19) pandemic.

We’ve set out some further temporary changes in the following sub articles and we’ll continue to keep you updated on any further changes in future pension schemes newsletters.

a. Re-employment in response to the coronavirus (COVID-19) outbreak

Update on 2 June 2020

The protected pension age easement has been extended up to 1 November 2020.

HMRC have been contacted about the potential loss of protected pension age in certain circumstances where individuals currently in receipt of pension benefits, are re-employed in relation to coronavirus (COVID-19).

Guidance in relation to pension protection age and employment (including re-employment) is at PTM062230

Where an individual with a protected pension age between age 50 and 55 retires and takes benefits before age 55, they lose their protected pension age if they are subsequently re-employed by any of the following employers:

• any person who was a sponsoring employer in relation to the pension scheme at any time during the period of 6 months ending leading up to the individual taking benefits
• any person who is connected with any such person, or
• any person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected

and none of the re-employment conditions are met.

On 22 April 2020 John Glen MP (Economic Secretary to the Treasury) made a written ministerial statement to confirm that the government intends to temporarily suspend tax rules that would otherwise apply significant tax charges to pension income received by recently retired individuals aged between 50 and 55. In line with this statement, if the nature of the employment is to undertake work in relation to the COVID 19 outbreak, then HMRC accepts that the re-employment conditions have been satisfied.

b. Pension scheme returns for 2019 to 2020

We know that pension scheme administrators are experiencing difficulties in getting the valuations that they need so that they can complete their pension scheme returns. To help with this we have decided not to issue any notices to file pension schemes returns for 2019 to 2020.

c. Benefits crystallisation event 1 and valuing sums and assets held within a registered pension scheme

We know that scheme administrators may face challenges valuing the sums and assets held within the scheme, to test these against the lifetime allowance under benefits crystallisation event 1 (BCE1).

As you know, when a member designates funds for a drawdown pension, their benefits are tested against the lifetime allowance under BCE1.

To find the value of the benefits being crystallised under BCE1, the scheme administrator must value the sums and assets held within the scheme, that are designated for drawdown and will follow the method in Capital Gains Manual CG59510 for valuing shares and securities quoted on the Stock Exchange Daily Official List. The guidance in CG59510 makes provision for special circumstances that mean the closing prices quoted in the Stock Exchange Daily Official List are not a proper measure of the market value of the shares or securities.

We accept the following may be treated as special circumstances:

• if trading has been suspended as a result of coronavirus (COVID-19)
• the closing prices are not a proper measure of market value of the shares or securities as a result of coronavirus (COVID-19)

If this is the case, you can choose either to use Regulation 2(1) of SI 2015/616 or another method to value these sums and assets.

You should both demonstrate and support any alternative method when you consider market value under Regulation 2(2) of SI 2015/616. You should consider each case on its own facts.

d. Other pension scheme valuations

We know that valuations of pension scheme assets may not be as expected as a result of coronavirus (COVID-19). If you’re valuing assets held by registered pension schemes, you should apply normal methods to get the most accurate valuation possible. Where this is not possible, you should use another method to arrive at a fair and reasonable valuation and be able to demonstrate and support any alternative method used. You should consider each case on its own facts.

2. Pension flexibility statistics

The quarterly release of official statistics on flexible payments from pensions for the period 1 January 2020 to 31 March 2020 has now been published.

HMRC can now give more information on the number of tax repayment claim forms processed for pension flexibility payments.

From 1 January 2020 to 31 March 2020 we processed:

• P55 = 6,286 forms
• P53Z = 2,973 forms
• P50Z = 1,138 forms
• Total value repaid: £32,659,329

Figures for the period 1 April 2020 to 30 June 2020 will be published in July 2020.

3. Registration statistics

For 2019 to 2020 HMRC received in total 1,818 applications to register new pension schemes. This is a 6% reduction compared to applications received in 2018 to 2019. Of these schemes, 77% have been registered and HMRC has currently refused registration for about 12% of applications. No decision has yet been made on the remainder. Since 2012 to 2013 HMRC has seen an 88% decrease overall in the number of applications to register pension schemes.

4. Annual allowance calculator

We told you in Pension schemes newsletter 118 that we would update the annual allowance calculator to reflect the changes to threshold income, adjusted income and the minimum tapered annual allowance for the 2020 to 2021 tax year.

We’ve completed this work and your members can now use the calculator for the 2020 to 2021 tax year.

5. Managing pension schemes service – timeline update

In the Managing pension schemes service newsletter – April 2020 we gave details of the timeline of delivery for features on the Managing registered pension schemes service. This included the features that we planned to introduce in 2021 and 2022. Unfortunately, as a result of HMRC’s response to coronavirus (COVID-19) we’ve had to delay the delivery of some of the remaining features onto the service.

We’re working to understand the impacts of this delay and we’ll provide you with more information on this as soon as we have it.

6. Unauthorised payments – operating the mandating procedure

We want to remind scheme administrators that you can find guidance on how to operate the mandating procedure correctly, in cases of unauthorised member payments, in the Pension schemes and unauthorised payments guide.

To make it easier and quicker for us to reduce your scheme sanction charge, when you pay across a member’s unauthorised payment tax charge you should contact us with the following details:

• member’s name
• date of birth
• National Insurance number
• tax year that the tax or unauthorised payment relates to
• date of unauthorised payment
• amount:
  • of the unauthorised payment
  • of the unauthorised payment charge
  • subject to the unauthorised payments surcharge

Other details that you should provide are:

• total tax withheld and paid across to HMRC
• date that the member’s charge was paid
• if payment included the scheme sanction charge, the amount of the scheme sanction charge
• if this information relates to a new unauthorised payment charge, or is an amendment to an existing unauthorised payment charge

If you want to provide us with details for multiple members you should contact us and we’ll tell you how you can do this.

7. Gibraltar and the overseas transfer charge

We know that there’s some uncertainty about whether the overseas transfer charge applies to transfers made to Gibraltar since the UK exited the European Union (EU).

PTM102300 states that transfers to an European Economic Area (EEA) state are not subject to the overseas transfers charge. Gibraltar was not an EEA state but was treated as one by virtue of the Treaty on the Functioning of the EU. As such Gibraltar was not subject to the overseas transfers charge. When the UK left the EU the rights and obligations of the EEA Agreement continue to apply to the UK, as they do to Gibraltar.

This means that transfers to Gibraltar are treated in the same way as they were before the UK left the EU.

As soon as the position after the transition period becomes clear we will amend the Pensions Tax Manual accordingly.