Guidance

Pension schemes newsletter 78 - May 2016

Published 17 May 2016

1. Pension flexibility statistics

The quarterly release of official statistics on flexible payments from pensions was published on 27 April 2016.

Further to this announcement we can now provide more information on the number of tax repayment claim forms (P55s, P53Zs and P50Zs) processed in respect of pension flexibility payments.

From 1 January to 31 March 2016 we processed:

P55 = 3,535 forms
P53Z = 5,635 forms
P50Z = 1,120 forms

Total value repaid: £24,808,722

Figures for the period 1 April to 30 June 2016 will be published in July 2016.

2. Secondary annuities - tax framework

On 20 April 2016 the government published a consultation into the detail of creating a secondary annuities market: tax framework. HM Revenue and Customs (HMRC) will arrange discussions with a range of stakeholders. Responses to the consultation are welcomed by the closing date of 15 June 2016.

3. Double taxation – certificate of residence requests

In Pension schemes newsletter 74 - December 2015 we explained that we have introduced a digital service so that you can send completed APSS146C, D and E forms to us electronically and we will then send the required certificates back to you in electronic pdf format.

This is to remind you that using this digital service will mean it takes less time for you to get your certificate of residence. As an alternative you can send bulk applications to us by spreadsheet. For our sample spreadsheet that sets out all required information and format and for more information on either of these options you can email: pensionschemes.doubletaxation@hmrc.gsi.gov.uk.

You can find more information in Pension Schemes Newsletter 74.

4. Tapered annual allowance

We have recently updated the Pensions Tax Manual to include guidance on the annual allowance taper and soon we will update this further to reflect modified reporting requirements following changes to the Registered Pension Schemes (Provision of Information) Regulations 2006 (SI 2006/567). In the meantime we have been asked to clarify when a scheme administrator is required to provide a member with a standard pension savings statement for 2016 to 2017 onwards.

We can confirm that under the recently modified information regulations the position for 2016 to 2017 onwards is unchanged, a scheme administrator is required to provide a standard pension savings statement to a member only if that member’s pension input amount for that scheme exceeds the general untapered annual allowance (currently £40,000) rather than if it exceeds the member’s personal tapered annual allowance. The requirements for providing a money purchase pension savings statement also remain unchanged.

We have also been asked to clarify when mandatory scheme pays applies to individuals who are subject to a tapered annual allowance. For 2016 to 2017 onwards individuals who are subject to the tapered annual allowance are not prevented from using mandatory scheme pays and can still do so providing their:

• annual allowance charge for the tax year exceeds £2,000*
• pension input amount for the registered pension scheme for the tax year exceeds the general untapered annual allowance (currently £40,000)

*where the money purchase annual allowance applies and the individual’s annual allowance charge liability for the tax year is the alternative chargeable amount, the requirements immediately above are the same except that the individual cannot use mandatory scheme pays unless their annual allowance charge liability on a default chargeable amount basis (ie by reference to the annual allowance) would have exceeded £2,000.

5. Registration statistics

For 2015 to 2016 HMRC received in total 4,376 applications to register pension schemes. This is a 43% reduction compared to applications received in 2014 to 2015.

Of these schemes 91% have been registered and HMRC has currently refused registration for about 5% of applications. No decision has yet been made on the remainder.

Since 2012 to 2013 HMRC has seen a 71% decrease overall in the number of applications to register pension schemes.

6. Lifetime allowance

a. Interim process – updated pro formas

Appendices 1 and 2 have the latest versions of the pro forma letter text for applying for IP2016 and FP2016. These have been updated for members to:

• confirm that they have not had a protection cessation event since 6 April 2016 that would mean they are not entitled to apply for Fixed Protection 2016
• notify us (where applicable) that they have become subject to a relevant pension debit and provide the required details

As well as other small changes.

b. Individuals with pension savings protected under the interim process

We have received a number of questions about the tax consequences for scheme administrators with members who have applied for IP2016 or FP2016 protection using the interim application process but who fail to follow this up with an online application. We can confirm that providing these individuals have not lost their protection, their pension savings will continue to be protected and there will be no tax consequences. However, from August 2016 onwards, only permanent reference numbers will be recognised by HMRC. In addition, when the pension scheme administrator look up service becomes available, it will only validate permanent reference numbers.

When an individual applies for a permanent reference number, details of their IP2016 or FP2016 (and any previous lifetime allowance protections) will show in their personal tax account. Going forward, the personal tax account will be populated with more details for members to access at any time. So we would be grateful if scheme administrators would promote the benefits of applying online and obtaining a permanent reference.

c. Lifetime allowance - customer feedback

Feedback from pension scheme administrators

We explained in recent pension scheme newsletters that we are currently developing an online service for scheme members to apply for protection from the lifetime allowance tax charge.

As part of this ongoing work, we would like your feedback as a pension scheme administrator and we’d be grateful if you could complete this short survey.

This is your opportunity to let HMRC know what your needs are as users of our new pension lifetime allowance online services. Your feedback will help us to build the best possible service.

After you have completed this survey our User Researcher, Mark Newman may contact you as part of our further research with end users. If you’re interested in participating in this further research over the next few months, simply opt-in to participate at the end of the survey.

We would like responses to the survey by the end of May 2016. Thank you for your help with this.

Feedback from pension scheme members

We’d also welcome feedback from your scheme members who are intending to apply for protection after the digital service becomes available in July 2016. We’d like your help as pension scheme administrators to circulate the following short survey to your members to help with our user research. Members completing the survey can opt-in to participate in further research at the end of the survey.

We would also like your members to respond to the survey by the end of May 2016. Thank you for your help with this.

7. Contacting Pension Schemes Services

This is a reminder for customers of the correct routes for raising queries with Pension Schemes Services.

If you have a question about the pension tax rules you should first refer to our published guidance on this website and in the Pensions Tax Manual. This guidance provides help, support and in-depth information on the pension tax rules and will help you to deal with the most common questions about the pension tax rules and legislation.

You can find guidance for pension scheme administrators, pension scheme members and pension scheme trustees on the pension scheme administration pages.

You can find in-depth guidance on the pension tax rules in the Pensions Tax Manual.

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. You should note that we can’t discuss individual or scheme specific information if we don’t have the appropriate authority and we cannot provide financial or tax planning advice or answer hypothetical questions.

You can find details of how to contact Pension Schemes Services by phone or in writing.

If you have feedback on the guidance then the correct contact route is ptm.consultation@hmrc.gsi.gov.uk.

If you have a general question not covered by the guidance you should contact Pension Schemes Services.

If your question relates to a specific scheme or transaction and after reading the guidance you are still not clear, you should go through the clearance process. Please note that under the clearance process we will only answer enquiries in cases of genuine uncertainty and where all the information required under the clearance service has been provided.

If you are a pension scheme administrator and have a Customer Liaison Manager (CLM) you can contact your CLM.

You can find more information about contacting Pension Schemes Services in the Pensions Tax Manual at PTM011300.

8. Payment date of uncrystallised funds pension lump sums (UFPLS)

The Taxation of Pensions Act 2014 made changes to Finance Act 2004 to authorise a scheme administrator to pay an uncrystallised funds pension lump sum (UFPLS).

It did not set out the date that these payments are considered as paid as they are treated in the same way as any other payment by the scheme administrator of a registered pension scheme. For all payments under a registered pension scheme, the payment date is a matter of fact. It is when the amount is actually paid.

An UFPLS triggers a benefit crystallisation event (BCE) when the individual becomes entitled to it (section 216 and paragraph 15(ba) Schedule 32 of FA 2004) and section 166(2)(aa) provides that the entitlement to an UFPLS arises immediately before the lump sum is paid. This is the moment before the payment, not any time before the payment is made. As a result an n UFPLS paid on or after 6 April 2016 triggers a BCE on the date it is actually paid. The amount crystallised is tested against the lifetime allowance in force on the date of payment.

When paying an UFPLS the scheme administrator is required to deduct tax under PAYE and report to HMRC through Real Time Information (RTI) on or before the payment date.

You can find more detail in the Pensions Tax Manual at PTM088670.

9. Pension flexibility - reporting of non-taxable death benefits through RTI

In Pension schemes newsletter 72 - September 2015 we gave guidance on the reporting of non-taxable death benefits through RTI from April 2016.

We have received a number of queries from pension payers/providers regarding P6 tax coding notices being issued by HMRC for death benefit payments that are entirely non-taxable (ie an entry in data item 174 only of the full payment submission (FPS)).

P6 coding notices are not relevant to these non-taxable death benefit payments and we are currently investigating this to identify why these notices are being issued. In the meantime scheme administrators have the following options:

1. If possible, stop reporting these non-taxable death benefit payments for 2016. You should continue to keep appropriate records to show that the payment was entitled to be made tax-free and further guidance will be issued once investigations are completed.

2. Continue reporting and if a P6 coding notice is issued that will be applied against future non-taxable payments to the beneficiary, email: pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘reporting non-taxable death benefit payments’ in the subject line. Please provide a contact name and telephone number in the email and HMRC will contact you to review the coding. In circumstances where the P6 has not been applied to the customer record, there will be no need to take any further action.

Please note that until the coding has been reviewed, the customers record will show a source of income with incorrect estimated pay (income) and they will receive a P2. This may prompt contact.

This guidance only applies to death benefit payments where the whole of the payment is non-taxable. All other payments including non-taxable elements should continue to be reported as per previous guidance.

We are sorry for any inconvenience or confusion this may cause.

10. Serious ill-health lump sums

The Finance Bill introduced to Parliament on 12 April 2016 extends the circumstances in which a serious ill-health lump sum may be taken. Currently even if the other criteria are met, a serious ill-health lump sum cannot be taken if from an arrangement where an individual has already accessed any of their benefit rights.

The change set out in the Finance Bill will allow those who have accessed part of their pension arrangement to be able to take a serious ill-health lump sum from the remaining uncrystallised funds in that arrangement. The change will take effect from the day after the Finance Bill completes the Parliamentary process.

For the avoidance of doubt, the change will not provide an extension to allow a serious ill-health lump sum to be taken from crystallised funds of any kind, including drawdown and flexi-access drawdown funds.

11. Appendix 1 - FP2016 interim application process

I wish to apply for Fixed Protection 2016 using the interim application process.

I confirm that I will be taking benefits before the new online system is available in July 2016 and I know that to ensure that my pension savings continue to be protected, I will need to apply for a permanent reference number from July 2016.

I enclose the following information for you to consider my interim Fixed Protection 2016 (FP2016) application.

[Title]
[Insert first name]
[Insert surname]
[insert National Insurance number]
[insert date of birth]
[insert address]
[Email Address]

I understand that if I, my employer or a third party make further contributions to my scheme I must notify HMRC and that my FP2016 will be lost.

I also know if my pension scheme has benefit accrual, that in some circumstances FP2016 may be lost and that I am responsible for testing for benefit accrual. I understand my pension scheme administrator can help provide me with information to help me carry out the test.

I confirm that as at 5 April 2016 I had one or more arrangements under a registered pension scheme, or a relieved non-UK pension scheme of which I was a relieved member, and that at 6 April 2016 I did not hold any of the following protections:

• Primary Protection
• Enhanced Protection
• Fixed Protection
• Fixed Protection 2014

I confirm that I have not had a protection cessation event since 6 April 2016 that would mean I am not entitled to apply for Fixed Protection 2016.

The information that I have provided is true and complete to the best of my knowledge and belief.

[Signature]
[Date]

12. Appendix 2 – IP2016 interim application process

I wish to apply for Individual Protection 2016 using the interim application process.

I confirm that I will be taking benefits before the new online system is available in July 2016 and I know that to ensure that my pension savings continue to be protected, I will need to apply for a permanent reference number from July 2016.

I enclose the following information for you to consider my interim Individual Protection 2016 application.

[Title]
[insert first name]
[insert surname]
[insert National Insurance number]
[insert date of birth]
[insert address]
[Email Address]

My total relevant amount is [insert value £] and is the sum of amounts A to D (A+B+C+D) below.

Amount A

The amount of my pensions in payment before 6 April 2006 was [insert value £], valued at 5 April 2016.

Amount B

Between 6 April 2006 to 5 April 2016, I crystallised benefits to the value of [insert value £], valued at 5 April 2016.

Amount C

My uncrystallised pension savings in UK registered pension schemes were valued at 5 April 2016 at [insert value £].

Amount D

My uncrystallised pension savings in relieved non-UK pension schemes at 5 April 2016 were valued at [insert value £].

[Only complete the following if applicable]

Pension Debits

Since 6 April 2016 I have become subject to a relevant pension debit.

[Date of pension sharing order]

[Amount of pension sharing order debit]

[New relevant amount]

I confirm that at 5 April 2016 I had one or more arrangements under a registered pension scheme, or a relieved non-UK pension scheme of which I was a relieved member and that at 6 April 2016 I did not hold Primary Protection or Individual Protection 2014.

The information that I have provided is true and complete to the best of my knowledge and belief.

[Signature]
[Date]