Guidance

Pension schemes newsletter 73 – October 2015

Published 23 October 2015

1. Scottish rate of Income Tax (SRIT)

In Pension Schemes Newsletter 72 we explained more about the work we have been doing to ensure that submissions of the RPSCOM100(Z) are made on time and are accurate in readiness for the introduction of the SRIT.

We explained that we would provide more information about this over the coming months and we have now created a Scottish rate news page at The SRIT - News stories which we will update with more information and the latest developments for individuals, employers and pension providers. We will also continue to provide additional updates and detail through our Pensions Newsletters.

2. Annual allowance

a. Annual allowance charges for tax year 2014 to 2015

Please remind your members that it is really important that those who have exceeded the pension schemes annual allowance of £40,000 for 2014 to 2015 declare this on their Self-Assessment tax return. The deadline for submitting the return is 31 January 2016 although those scheme members who want to submit a paper Self-Assessment tax return must do so by 31 October 2015.

Those members who have exceeded the 2014 to 2015 annual allowance and do not have sufficient unused annual allowance to carry forward from previous tax years will have to pay a tax charge. Further information on paying tax charges can be found at Tax on your private pension contributions.

Your members may use the annual allowance calculators to help them work out whether they are affected by an annual allowance charge and if they will have to complete a tax return. Members should use the Pension schemes annual allowance checking tool first and those that are affected by an annual allowance charge are then recommended to go on to use the pension savings annual allowance calculators to determine if they have any unused annual allowance from previous years which they can carry forward.

b. Tapered annual allowance

Scheme administrators are also reminded that from 6 April 2016, as part of the changes for the tapered annual allowance, all pension input periods must be aligned with the tax year, even if the member is not affected by the taper.

3. Registration statistics

For the period 6 April 2015 to 30 September 2015 HM Revenue and Customs (HMRC) received in total 2,424 applications to register new pension schemes. This is a 38% reduction compared to applications received in the same period last year.

Of these schemes, 91% have been registered and HMRC has currently refused registration for about 4% of applications. No decision has yet been made on the remainder.

4. Pension Flexibility

a. Taxation of lump sum death benefits PAYE

In Pension Schemes Newsletter 72 we explained that the tax charge on taxable lump sum death benefits paid to individuals will change to the recipient’s marginal rate of income tax from 6 April 2016.

Normal PAYE rules will apply to these payments.

If the recipient has a P45 from a previous source/employment dated on or after 6 April in the current year, the scheme administrator should operate the code on the P45 on a Month 1 basis.

If a scheme administrator already makes payments to the recipient and has a tax code for those payments, the tax code should only be used for additional payments if the payments are being made at the same time. If more than one payment in a month is made and the same tax code is operated against each of those payments it could give the benefit of the tax allowances and rate bands twice.

In all other circumstances, scheme administrators should use the emergency code on a Month 1 basis against the payment and HMRC will issue a tax code to operate against future payments.

Where the beneficiary is receiving a lump sum payment that extinguishes the fund, the scheme administrator must issue a P45 which will enable the recipient to claim any tax refund that might be due in-year. Scheme members can find more information on claiming a tax refund at Claim a tax refund.

b. Payroll IDs

In Pension Schemes Newsletter 72 we provided some details on new Full Payment Submission data items that will be introduced in April 2016.

The addition of data item 173 (taxable amount) and data item 174 (non-taxable amount) means that scheme administrators will no longer need to report payments related to data item 168 separately under separate payroll IDs or make payments on different dates under the same payroll ID. However, if you are already reporting in this way, you can continue to do so, but from April 2016 you will also need to complete data items 173 and 174.

c. Pension Flexibility Statistics

The first quarterly release of official statistics on Flexible Payments from Pensions will be published on 28 October 2015 and can be found at Statistics at HMRC.

Further details can be found at HMRC Announcements.

d. Pension Flexibility – transitional period

In Pension Schemes Newsletter 64 we explained that special temporary rules allowed individuals to take their pension commencement lump sum tax-free before 6 April 2015 and the associated taxable pension before 6 October 2015, outside of the usual six-month time-limit.

This allowed individuals to delay accessing their pension until the provisions of the Taxation of Pensions Act 2014 took effect from 6 April 2015, providing them with more choice.

Many will have accessed their pension shortly after 6 April 2015 but please note that the extended period for individuals to access their pension after taking their pension commencement lump sum under these temporary rules expired on 6 October 2015.

5. Lifetime allowance reduction – protecting pension savings

In Pensions Schemes Newsletters 71 and 72 we explained that we would provide more information about the lifetime allowance protection regimes for individuals to protect their pension savings when the lifetime allowance reduces to £1m from 6 April 2016.

From April 2016 there will be two protection regimes available Individual Protection 2016 (IP2016) and Fixed Protection 2016 (FP2016). There will be no application deadline for these protections. However individuals will need to apply for protection before they take their benefits as they will need the HMRC reference number if they want to rely on the protection. This means that those wanting to rely on IP 2016 or FP2016 should apply before they take any benefits on or after 6 April 2016. This is so that those benefits can be tested against the higher Lifetime Allowance (LTA) provided by these protections rather than the £1 million standard LTA. This applies even when the benefits being taken are worth less than £1 million.

If the individual doesn’t have the reference number (see interim process below) then the amount of the benefit crystallisation event will be expressed as a percentage of £1 million, rather than the higher protected LTA.

We are introducing a new online self-service for pension scheme members to apply for protection and this service will be available for members to use from July 2016. Members will no longer receive a lifetime allowance protection certificate, instead once they have successfully applied for protection the online service will provide them with a reference number which they will need to keep.

We are also introducing an online service for scheme administrators to check the protection status of their scheme members. We are exploring options for what this will look like and will provide more information on this in due course.

We will continue to work with scheme administrators to ensure information about lifetime allowance protections reaches your members.

Interim process

There will be a period between the new protection regimes becoming available in April 2016 and the introduction of the new online self-service in July 2016. For this period we will introduce an interim process for pension scheme members who want to take benefits before the introduction of the new online service. Scheme members will be able to write to HMRC between April 2016 and July 2016 and we will check the details of their protection and respond to the member in writing. This can then be presented to the scheme administrator in advance of the full application being made after July 2016.

Individual Protection 2014

Please remind your members that they can still apply for Individual Protection 2014 to protect any pension savings built up before 6 April 2014 from the LTA charge (subject to an overall maximum of £1.5 million).

Applications can be made online and there is an online tool to help individuals decide whether to apply for IP2014 which can be found at Lifetime Allowance Checking Tool.