Guidance

Pension schemes newsletter 70 - July 2015

Published 21 July 2015

1. Summer Budget 2015

The following is a summary of all the announcements in the Budget on 8 July 2015 in connection with tax relieved pension savings.

a. Tapered annual allowance (AA)

From 6 April 2016, there will be a tapered reduction in the amount of the AA. This will apply to individuals whose income, including the value of their total pension input amount, is over £150,000. For every complete £2 their income exceeds £150,000 the AA will be reduced by £1, up to a maximum reduction of £30,000 for individuals whose income is over £210,000. The total pension input amount for this purpose will be calculated in the same way as it is for working out the value of pension savings for the AA.

However, where an individual’s taxable income is no more than £110,000 they will not be subject to the tapered AA.

Pension input periods will be aligned with the tax year for the year 2016 to 2017 onwards. Transitional rules for the 2015 to 2016 tax year will be introduced to protect savers who might otherwise be impacted by the alignment of their pension input periods.

Legislation is included in the Summer Finance Bill 2015 to 2016.

You can find more information in the pensions tapered AA tax information and impact note.

You can find further information on the transitional rules in a pensions technical note.

You should note that there will be a few changes to the technical note as first published.

(i) Under the heading ‘Pension input period rules from 6 April 2016’ the first sentence of the last paragraph, should read, ‘Any new arrangement that has a first pension input period commencing on or after 9 July 2015, will have a first pension input period that starts on the normal commencement day (see PTM052100) but which ends on 5 April in the same tax year as the pension input period started’.

(ii) Immediately before the heading ‘Paying any annual allowance charge for 2015 to 2016’, add

‘Example 11A

Sheldon is not subject to the money purchase annual allowance. He has £18,000 carry forward from 2014 to 2015 available for the pre-alignment tax year. His total pension input for the pre-alignment tax year is £24,000. As this is less than £40,000, Sheldon can carry forward to the post-alignment tax year the full £40,000 from the pre-alignment tax year, plus the unused £18,000 carry forward from 2014 to 2015. His annual allowance for the post alignment tax year is therefore nil plus £58,000 carry forward.

Sheldon’s pension input amount for the post-alignment tax year is £31,000.

This is less than his available annual allowance plus carry forward. However the £31,000 uses up part of the £40,000 carry forward from the pre-alignment tax year first. This means that Sheldon can carry forward to the 2016 to 2017 tax year the £9,000 remaining from the pre-alignment tax year plus the £18,000 from 2014 to 2015. Sheldon’s total carry forward available for 2016 to 2017 is £27,000.’

(iii) ‘Threshold income’ definition under the heading ‘Income definitions’ - add at the end of definition ‘less the gross amount of any relief at source contribution (to ensure that when calculating threshold income, any contributions made under net pay or relief at source are not taken into account).’

b. Lifetime allowance

In the Budget on 8 July 2015 the Chancellor of the Exchequer confirmed that, as previously announced, the lifetime allowance for pension savings will be reduced from £1.25 million to £1 million from 6 April 2016. Transitional protection will be introduced alongside this reduction to ensure the change is not retrospective. The lifetime allowance will also be indexed annually in line with the Consumer Prices Index from 6 April 2018. Legislation will be included in Finance Bill 2016.

There will be 2 protection regimes which will have the same conditions as the previous fixed and individual protection regimes for individuals who want to rely on them. That is for the new ‘fixed protection’ you must have no benefit accrual on after 6 April 2016, and for the new ‘individual protection’, you must have savings of at least £1 million on 5 April 2016.

The notification process will though be different, as individuals will not need to notify HM Revenue and Customs (HMRC) in advance where they want to rely on fixed protection or have 3 years to apply for individual protection. Instead, HMRC are considering options around removing the deadlines for applying for these protections. We will be discussing this informally with stakeholders over the next few weeks so that we can publish full details later this summer.

In the meantime, pension providers and employers should consider what communications they need in advance of 6 April 2016 to individuals who may be affected.

c. Tax on lump sum death benefits

For deaths on or after 6 April 2016, lump sum death benefits that are currently subject to the special lump sum death benefit charge of 45% will, when paid to an individual, be taxable at the recipient’s marginal rate.

Legislation is included in the Summer Finance Bill 2015 to 2016.

d. Sale of annuities

The changes to allow the sale of annuities announced at the March 2015 Budget will go ahead, but the start will be delayed until 2017 to give time to develop the most effective protection for consumers. The government’s response to the consultation and plans for implementation will be set out in the autumn.

e. Consultation on pensions tax relief

HM Treasury have published a consultation document on strengthening the incentive to save: a consultation on pensions tax relief.

The aim of the consultation is to look at how individuals can be better encouraged to save adequately for their retirement.

Responses to this consultation should be received by Wednesday 30 September 2015 and should be sent to pensionsconsultation2015@hmtreasury.gsi.gov.uk or you can write to

Pensions Consultation 2015
Pensions and Savings Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

f. Unfunded employer financed retirement benefit schemes (legislation potentially to be included in Finance Bill 2016)

HMRC will consult informally with stakeholders on how to tackle the use of unfunded employer financed retirement benefit schemes to obtain a tax advantage in relation to remuneration.

Stakeholder meetings are expected to take place during the summer and further details will be published later. Interested parties will be able to contribute through their representative groups. Alternatively if you wish to you may send your comments to Pensions Policy at pensions.policy@hmrc.gsi.gov.uk .

2. Changes to contracting out records

HMRC has seen an increase in the number of applications to change contracting out records where the required information has not been included.

This is a reminder that if you make changes to the contracting out records, HMRC will only accept written notification of the change from either the:

• scheme’s principal employer in the form of a letter of authority from them on company headed paper

• trustee of the pension scheme by sending a copy of the documentation appointing the new administrator

Without this we are unable to process the changes. Please note that we no longer accept change of details from former or new administrators.

3. Certificates of residence

HMRC has seen an increase in applications requesting certificate of residence for countries that are subject to tax and therefore don’t qualify for a certificate.

We can only issue a certificate of residence for countries that we hold a tax treaty with where taxes are liable. We can’t issue a certificate of residence for any country where taxes are the subject of present convention, for example, Portugal and Israel.

This will help you decide whether the country in question is liable or subject to tax. You can also find what article dividend and interest falls under in the treaty for that country - you’ll need this if you’re making a claim for repayments of tax on dividends or interest.

You can find more information about the change to the process for HMRC issuing certificates of residence in pension schemes newsletter 64.

4. Pension flexibility - forms for claiming repayment of tax

Printable versions of the P50Z, P53Z and P55 forms are now available. Scheme members can use these forms to make a repayment claim for overpaid tax on payments taken under the new pension flexibility rules:

• P50Z - scheme members should only use this form if they have flexibly accessed the whole of their pension pot and have no continuing source of income (other than State Pension)

• P53Z - scheme members should only use this form if they have flexibly accessed the whole of their pension pot but have a continuing source of income, eg, employment or pension

• P55 - scheme members should only use this form if they have flexibly accessed some of their pension pot, are not taking regular payments and pension body is unable to make any refund

Please remind your members that these forms should only be used for reclaiming tax on pension flexibility payments.

5. Contacting Pension Schemes Services (PSS)

This is a reminder for customers contacting PSS either by telephone or in writing that you can find answers to many of your questions in our online guidance.

This guidance provides help, support and in-depth information on the pension tax rules. It will help you to deal with the most common questions about the pension tax rules and legislation. You should refer to this guidance before contacting PSS.

You can find more guidance and information in the Pensions Tax Manual and in the pension scheme administration guidance.

If, after reading our guidance, the pension tax rules are still unclear HMRC can help to clarify pension legislation subject to you specifying the pages of the guidance that you have considered and which part of this area of the guidance is unclear. Please note that we can’t discuss individual or scheme specific information if we don’t have the appropriate authority.

6. Routine changes to Pension Schemes Online

At the end of July 2015 HMRC will be making some changes to Pension Schemes Online. These changes include removing the option for a scheme administrator to add themselves to an unknown scheme online or submit an online return for an unknown scheme.

From 27 July 2015 you will need a Pension Scheme Tax Reference (PSTR) to complete these actions. If you are a scheme administrator but don’t have a PSTR you will need to contact HMRC with the SF reference of the unknown scheme and you can do this by calling the Pensions schemes helpline. We will be updating the Pension Schemes Online user guide.

Following these changes, scheme administrators will still be able to add themselves as an administrator of a deferred annuity contract using the policy reference number and this will generate a PSTR that they can then use to submit returns. The changes keep this existing functionality for deferred annuity contracts but from 27 July 2015 this will also include retirement annuity contracts.

In addition, the following changes will be made:

• the information required when registering a pension scheme will change - as will the online declarations

• when making an application to register a new pension scheme it will no longer be possible to register for relief at source - registration for relief at source will only be possible once a pension scheme has a status of ‘open’

• when making an application to register a Group Life or Death in Service scheme, a new type of ‘pension scheme structure’ will be available for selection