Guidance

Pension schemes newsletter 81 - September 2016

Updated 30 September 2016

1. Tax treatment of serious ill health lump sums

As HM Revenue and Customs (HMRC) explained in Pension Schemes Newsletter 77, at Budget 2016 the government announced a number of measures relating to the pension tax rules. This included replacing the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate.

These measures took effect on 16 September 2016, the day after the date of Royal Assent to Finance Bill 2016.

From this date you should stop reporting these payments on your accounting for tax return (AFT) (the last AFT that you should report these on is 1 July to 30 September 2016 – due to be submitted by 14 November 2016) and report them through real time information (RTI).

HMRC are currently working on the RTI amendments which will include separate fields for serious ill health lump sum payments to individuals over 75 but the RTI system won’t be updated straight away. We would usually include details of these in our October release on GOV.UK at Real Time Information internet submissions: 2017 to 2018 technical specifications.

Details of these new fields will now be released in December, rather than October, together with some changes in respect of the Secondary Annuities Market. We are sorry for any inconvenience caused by this delay.

In the meantime, you should report these payments through RTI. If you have a tax code for your member for the current year you should operate this code on a week 1/month 1 basis against any serious ill health lump sum payment made.

If not you should:

• deduct tax using emergency code on a week 1/month 1 basis
• set the occupational pension indicator
• use the date of payment as the leaving date on their payroll record so this is sent to HMRC when you report your payroll information (a starting date or an entry in the annual amount of Occupational Pension field is not required)
• prepare a P45 and give it to the pension recipient

You should also enter the taxable element of the lump sum, or sums, paid in the ‘taxable pay to date’ and the ‘taxable pay in this period’ fields on the full payment submission (FPS).

If you have applied emergency code to a serious ill health lump sum payment to a member and they want to reclaim in year any excess tax paid, they should do so using the P53Z form.

2. Event Report

2.1 a. Reporting data about pensions savings statements

A number of customers have approached HMRC regarding the submission of data in relation to pension savings statements for 2015 to 2016 tax year (reportable events 22 and 23). If you’re experiencing problems with your submission due to the number of reports you need to make, please email HMRC for help with this at pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Pension Savings Statements’ in the subject line of your email.

2.2 b. Checking and amending the member range for your scheme

In Pension Schemes Newsletter 68 HMRC explained that the member ranges that we ask for when scheme administrators submit an application to register a new pension scheme had been amended.

Those schemes that were already registered automatically had their member ranges converted to one of the new member ranges. We asked scheme administrators to check that the member range for their schemes is correct and if not to amend this through your Event Report.

This is to remind you to check and where necessary amend the member range for each of your schemes.

2.3 c. Annual allowance – reportable events 22 and 23

As you may be aware from the 2014 to 2015 Event Report, Event 22 requires pension scheme administrators to report the aggregate pension input amounts for each member for annual allowance purposes. From 2015 to 2016 scheme administrators also have to report if they have provided the member with a pension savings statement – this is Event 23.

When reviewing the information reported, HMRC have seen that for some individuals the total of the pension input amounts reported for the tax year in question are:

• out of date information
• the same as the total value of their fund
• unrealistic considering the amount of pension benefit they could have accrued during the pension input period

If inaccurate information is provided on the Event Report, individuals may think that their tax charge is larger than it is. So this is to remind all pension scheme administrators that the information reported for Events 22 and 23 on the Event Report must be up to date and accurate. If the information in the Event Report is not correct, in some circumstances the scheme administrator may be liable to a penalty.

You can find more information about event reporting for pension schemes in the Pensions Tax Manual at PTM161000.

3. Relief at source annual returns of individual information for 2015 to 2016

Earlier this year HMRC issued notices requiring pension schemes operating relief at source to submit the annual return of individual information for 2015 to 2016 (also known as the RPSCOM100(Z)) to HMRC by 5 October 2016.

If you are a pension scheme administrator operating a relief at source pension scheme but have yet to receive a notice requiring you to submit this information, please email pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Relief at Source’ in the subject line of your email.

We want to remind scheme administrators that failure to submit this information by the deadline will hold up any subsequent interim repayments pending receipt of the outstanding information. Where a submission is made, but fails processing, we still deem this to be outstanding and we will stop any subsequent interim repayment claims pending successful re-submission.

If failure occurs on the third submission we will stop all future interim repayments until a further re-submission is received and is deemed successful.

Since October 2014 we have stopped a number of interim repayment claims for non-submission or submission failure and where possible, have been working closely with pension scheme administrators to help them meet their obligations.

You can find more information on relief at source repayments and the member information we ask for relating to relief at source in the guide Pension administrators: Relief at Source annual information returns.

4. Secondary annuities

4.1 a. Secondary annuities – real time information

As part of the tax consultation into the new Secondary Annuity Market HMRC outlined that there will be new RTI fields to report the surrender or assignment of annuities from 6 April 2017. We would usually include details of these in our October release Real Time Information internet submissions: 2017 to 2018 technical specifications on GOV.UK.

Details of these new fields will now be released in December, rather than October, alongside the serious ill health changes. We are sorry for any inconvenience caused by this delay.

4.2 b. Secondary annuities – pre-registration for Pension Wise guidance

As you may be aware the government introduced Pension Wise to provide free and impartial guidance to pension scheme members who want to know more about their options for taking pension savings under pension flexibility which was introduced April 2015.

The government is extending the Pension Wise service to include guidance for annuitants who want to sell their annuity from April 2017. Pension Wise are looking for annuitants who are considering selling their annuity when the new market opens, to participate in a series of pilot appointments for both face-to-face and telephone contacts. Annuitants who are interested in selling their annuity can pre-register to take part in the pilot exercise by completing a form on the Pension Wise website.

5. Lifetime allowance

5.1 a. Lifetime allowance online service

In Pension Schemes Newsletter 80 HMRC launched our new online service for pension scheme members to apply to protect their pension savings from the lifetime allowance tax charge.

From the launch of the service on 28 July 2016 to 18 September 2016 we have had 17,453 applications submitted using the online service. The figures for each protection type are:

• 617 Individual Protection 2014 (IP2014) applications
• 4,867 Individual Protection 2016 (IP2016) applications
• 11,969 Fixed Protection 2016 (FP2016) applications

In addition we received 12,851 IP2014 applications before 28 July 2016 (when the online service became available).

Feedback that we have received from customers about the online service has been positive with the service saving time for both our customers and HMRC.

We are continuing to improve the lifetime allowance online service and have made further amendments to provide the best possible service to our customers.

On 15 September 2016 we updated the Personal Tax Account to allow customers to view their protection details from their Personal Tax Account.

Also, individuals applying to protect their pension savings from the lifetime allowance tax charges, or individuals who have already applied, will be able to log on to their Personal Tax Account at any time and save their online service protection summary page as a pdf. Scheme members will be able to provide their scheme administrator with the pdf confirming their lifetime allowance protection.

To make it easier for individuals and scheme administrators, the protection summary page has been updated to include the individual’s name and national insurance number in addition to the lifetime allowance protection reference number and the pension scheme administrator’s reference number already shown.

5.2 b. Overseas scheme members without national insurance numbers

If you have overseas scheme members who want to apply to protect their pension savings but who don’t have a national insurance number, please advise them to contact the Pension Schemes Helpline, select option 2 and hold to speak to a call handler.

5.3 c. Lifetime allowance - accessing the online service

As you may be aware, scheme members using the lifetime allowance online service must verify who they are online using our Verify service. It will usually take about 10 minutes to verify your identity the first time you use GOV.UK Verify, and a couple of minutes any time after that.

HMRC have had some contact from scheme members who have experienced some problems completing the online verification service. Whilst our advice to these customers is to try the Verify service again, scheme members should be aware that if they try to confirm their identity more than 5 times in an hour or 8 times within 24 hours they will be locked out for 7 days.

This may help if you are approached by your pension scheme members about problems with the Verify service. You and your scheme members can find more information about Verify at GOV.UK Verify.

If your scheme members continue to experience problems please advise them to contact the Pension Schemes Helpline, select option 2 and hold to speak to a call handler.

5.4 d. Pension scheme administrator look up service and LTA online service additional member functions

As you may be aware, HMRC are currently working on a look up service for pension scheme administrators to check the protection status of their members. We are also working to introduce an amend function so that pension scheme members who have IP204 or IP2016 can amend their protection details online. We had hoped to launch these in October, however delivery of this has been delayed slightly. We are continuing to develop this service and additional member functionality and these will be available later in the year for pension scheme administrators to use.

In the meantime pension scheme administrators should continue to check the protection status of their members before making payments and you can find more information about this in Pension Schemes Newsletter 80.

Pension scheme members should contact HMRC in writing to amend their protection details until the amend function goes live later in the year.

6. Annual allowance calculator

HMRC have now launched a beta version of our new annual allowance calculator to help pension scheme members work out how much annual allowance they have used and how much they can contribute to their pension schemes without facing an annual allowance charge.

The new calculator includes the transitional annual allowance rules for 2015 to 2016 and will help your members to check whether they need to declare an annual allowance tax charge on their SA return for the 2015 to 2016 tax year (the deadline for submitting this is 31 January 2017). The new calculator also includes the current year.

Launching the calculator as a beta version means that we will review and improve the calculator and we welcome feedback from you and your scheme members about using the calculator. You can provide feedback to us using the feedback option directly on the GOV.UK pages or by emailing us at pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Annual allowance calculator’ in the subject line of your email.

The annual allowance calculators and tools for previous years will still be available on GOV.UK and your members can find more information about the annual allowance rules in the guide Tax on your private pension contributions.

7. Pension flexibility and pension scams

The pension freedoms introduced in April 2015 mean that scheme members of defined contribution schemes have a lot more choice about how they access their pension. HMRC want savers to make the right decisions about investments and to understand the consequences of not seeking proper advice.

Pension scammers are continually looking for new ways to target individuals and their pension savings. Whilst the action we are taking to prevent these sorts of arrangements from operating goes some way to help protect pension savings, the responsibility for getting the right advice lies with the pension scheme member.

Please remind your scheme members that they can find lots of information on GOV.UK about the pension tax rules and how they can access their pension savings.

Your members can get free and impartial government guidance to help them understand what they can do with their defined contribution pension, through the Pension Wise service.

In addition The Pensions Regulator provides information about how pension scheme members can protect themselves against pension scams.