determine if these sources of funding could be used to increase assistance for affected scheme members; and

Transcription

1 29th March 2007 Issue No: 14 Pensions Bulletin Financial Assistance Scheme Review of assets Following the Budget announcement last week of an expansion to the Financial Assistance Scheme (see Pensions Bulletin 2006/12), the Secretary of State for Work and Pensions has announced a review of pension scheme assets held by insolvent employers. The review will: examine how to make best use of the assets in pension schemes that are winding up under funded with an insolvent employer; determine if these sources of funding could be used to increase assistance for affected scheme members; and consider any suggestions from interested and concerned parties. It will report by the end of the year. The announcement of the review was made in the House of Commons along with some further information as to what led the Government to expand the Financial Assistance Scheme. The review is distinct from a separate review on unclaimed assets (relating to Banks and Building Societies) that was launched on 20th March Finance Bill 2007 Following the Budget last week (see Pensions Bulletin 2007/12), the Finance Bill has been published. It contains a number of clauses relating to pension tax simplification that are along the lines proposed in the Budget and the Pre-Budget report (see Pensions Bulletin 2006/49). Annual Allowance Backdating of pension input periods Concerns had been raised within the pensions industry as to whether nominations for the end date of a pension input period (PIP) could be backdated across the start of a tax year. The accrual of pension benefits in the PIPs that end in a given tax year are tested against the Annual Allowance in that tax year to see whether an annual allowance charge is due. If backdated nominations were not allowed then, in some circumstances, there could have been a need to take urgent action before the end of the 2006/07 tax year. HM Revenue and Customs (HMRC) has confirmed to industry representatives that backdated nominations are permissible, including across tax years and therefore the pressure for immediate action has lifted. Pensions tax simplification New allowances

2 The end of the first year of the new pensions tax regime is on 5th April From 6th April 2007 the Annual Allowance will become 225,000 (up from 215,000) and the standard Lifetime Allowance (LTA) will become 1,600,000 (up from 1,500,000). The change to the LTA, in particular, will have an immediate effect in calculating the percentage of the LTA used up by benefit crystallisation events (such as drawing a pension) as well as the available portion of the member s lump sum allowance for pension commencement lump sum calculations. Comment: LTA tests are carried out as at the date of entitlement of the benefit, which is strictly defined by HM Revenue and Customs. Administrators carrying out calculations in the next month or so should take particular care to check into which tax year the date of entitlement falls. Guaranteed Minimum Pensions (GMPs) new fixed rate of revaluation As reported in Pensions Bulletin 2006/10, from 6th April 2007, the new rate of 4.0% for revaluing GMPs between termination of contracted-out employment and GMP pension age (65 for men, 60 for women) comes into force. For schemes using GMP fixed rate revaluation, this will affect benefit and transfer calculations for leavers after that date. Pension Protection Fund Closed schemes The Pension Protection Fund (Closed Schemes) Regulations 2007 (SI 2007/865) have been laid before Parliament and come into force on 6th April 2007 (see also the explanatory memorandum). The regulations fill in some of the detail of a PPF closed scheme ie a scheme that demonstrates that it has sufficient assets and would be required to wind up following a PPF assessment period were it not for the fact that the trustees have been unable to obtain a full buy-out quotation. The Department for Work and Pensions (DWP) has published its response to the consultation on these regulations (see Pensions Bulletin 2006/31) which makes clear that a number of changes were made prior to the regulations being finalised. In particular, since concerns were expressed that a draft regulation made it harder for PPF closed schemes to wind up, it has been withdrawn and will be considered further and implemented only if the DWP feels it is necessary and appropriate. Furthermore, the DWP has stated that trustees of such schemes are under a continuing duty to approach the PPF as soon as it is apparent that the scheme is not in a position to meet its protected liabilities. The PPF and Pensions Regulator are expected to issue guidance in this area in due course. The DWP has also published its response to the consultation on the Pension Protection Fund (Contributions Equivalent Premium) Regulations 2007 (SI 2007/834) which have been laid before Parliament (see Pensions Bulletin 2007/13). Pensions tax simplification Further anti-avoidance measures HM Revenue and Customs has published a consultation document, Tax relief for pensions: Inheriting taxrelieved pensions savings (see also Pensions Bulletin 2007/12 Budget Special). This is a follow up to the concern expressed in the December 2006 Pre-Budget report (see Pensions Bulletin 2006/49) of the use of the Page 2

3 scheme pension rules in order to pass on tax-relieved pension savings on death by internal re-allocation for the benefit of connected persons. The Government does not consider it an appropriate use of tax-relieved pension savings where: a member dies with a scheme pension or annuity in payment; arrangements have been put in place that seek to increase the rights of another person as a consequence of the death of a member (or a dependant), except in the form of authorised dependants benefits; and the other person that benefits from the increase in rights was connected with the deceased. As a result the Government intends to come forward with pensions tax and inheritance tax measures to counter such arrangements. These measures will closely reflect those that will apply to alternatively secured pension funds that remain on the death of a member. The Government invites representations on the detail of how such measures can be operated in practice, set in the context of the above principles. Judicial review of Government s rejection of Ombudsman s report Transcript Following the High Court s recent ruling on this matter (see Pensions Bulletin 2007/09), the transcript is now available. As was widely reported at the time, the High Court quashed the Secretary of State s rejection of the Parliamentary Ombudsman s finding of maladministration due to misleading official information. The Secretary of State was directed to reconsider this part of the Ombudsman s findings. However, the High Court went on to rule in favour of the Government on the other counts namely by: upholding the Secretary of State s rejection of the Ombudsman s finding that this maladministration had caused injustice to all affected individuals (estimated to be between 75,000 and 125,000); upholding the Secretary of State s rejection of the Ombudsman s finding that changes to the Minimum Funding Requirement constituted maladministration; and rejecting claims that the Government s refusal to restore the pension entitlements of affected members is contrary to the pensioners rights to security of possessions under the European Convention on Human Rights. Comment: The transcript makes clear that neither side can claim a comprehensive victory based on the conclusions of the High Court, despite some partisan reporting to that effect. Financial Reporting Council Proposed levy The Financial Reporting Council (FRC) has published its proposed 2007/08 levy for setting actuarial standards and overseeing the actuarial profession. The FRC is proposing to fund the estimated 2.2m levy, Page 3

4 (in contrast to 1.7m in 2006/07), on the same basis as the 2006/07 levy (see Pensions Bulletin 2006/27 and Pensions Bulletin 2007/03). The levy will be collected in three ways: 45% from pension schemes with more than 1,000 members at a rate of 2.10 per 100 members (in comparison to 2 per 100 members in 2006/07); 10% from the actuarial profession; and 45% from insurance companies. Tax avoidance National insurance contributions subject to disclosure regime HM Revenue and Customs has published guidance on the disclosure of national insurance avoidance schemes. This is in response to the announcement that the tax avoidance disclosure rules will be extended from 1st May 2007 to encompass certain arrangements designed to secure advantages in relation to national insurance contributions (see Pensions Bulletin 2007/11). Pensions tax simplification Revised forms HM Revenue and Customs has published five revised maintenance forms and one protection form which are to be used with immediate effect. APSS Add Scheme Administrator APSS Amend scheme details APSS Change of Scheme Administrator/Practitioner user details APSS Associate Scheme Administrator to scheme APSS Cessation of Scheme Administrator APSS Protection of Existing Rights ( including Completion Notes) Pensions tax simplification Final versions of Pension Scheme Returns HM Revenue and Customs (HMRC) has published final versions of the Pension Scheme Returns: APSS 301 and APSS 301 Notes for occupational pension schemes; and APSS 313, APSS 313 Insert and APSS 313 Notes for non-occupational pension schemes. We understand that HMRC will start issuing notices to complete these returns from 6th April Schemes that do not receive a notice do not need to take any action. Page 4

5 Scheme Administrators Fact sheet HM Revenue and Customs has published a fact sheet for Scheme Administrators that summarises their duties and responsibilities. Pension Protection Fund Members website The Pension Protection Fund (PPF) has launched a new website that caters specifically for members of pension schemes that have been transferred to the PPF. The site explains what the PPF is responsible for, what the member can expect to receive in terms of compensation and sets out relevant forms and publications. Income Tax Act 2007 The Income Tax Act 2007 received Royal Assent on 21st March 2007 which completes the rewrite of income tax legislation (see Pensions Bulletin 2006/50). This Pensions Bulletin should not be relied upon for detailed advice or taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you. ane Clark & Peacock LLP provides a full range of actuarial, consultancy, risk analysis and administration services to companies in the UK and internationally. LCP is part of the Alexander Forbes group of companies, one of the top 10 international risk and financial services organisations, employing over 5,500 people in more than 30 countries. Alexander Forbes is a public company listed on the JSE in South Africa. 30 Old Burlington Street London W1S 3NN Tel: Fax: St Paul s House St Paul s Hill Winchester Hampshire SO22 5AB Tel: Fax: LCP DC Link Ltd Churchgate New Road, Peterborough Tel: Fax: Alexander Forbes House 6 Bevis Marks London EC3A 7AF Tel: Fax: *Union House Union Street, St Helier Jersey JE4 8UU Tel: Fax: *PO Box 12 Maison Allaire Smith Street, St Peter Port Guernsey GY1 4AG Tel: Fax: LCP Belgium Marcel Thirylaan 200 Avenue Marcel Thiry 200 B Brussel - Bruxelles, Belgium Tel: +32 (0) Fax: +32 (0) LCP Libera AG Stockerstrasse 34 CH-8022 Zürich Switzerland Tel: +41 (0) Fax: +41 (0) All rights to this document are reserved to Lane Clark & Peacock LLP. This document may not be copied or used in anyway without prior permission from Lane Clark & Peacock LLP. LCP is a limited liability partnership registered in England and Wales with registered number OC LCP is a registered trademark in the UK (Regd. TM No ) and in the EU (Regd. TM No ). All partners are members of Lane Clark & Peacock LLP. A list of members names is available for inspection at 30 Old Burlington Street, W1S 3NN, the firm s principal place of business and registered office. The firm is regulated by the Institute of Actuaries in respect of a range of investment business activities. A member of the Multinational Group of Actuaries & Consultants Main offices in: AFRICA AUSTRALIA EUROPE NORTH AND CENTRAL AMERICA * No regulated business is carried out from these offices ACTUARIAL CONSULTANCY OF THE YEAR Page 5