LCP SSAS UPDATE NOVEMBER 2013 Our view on recent regulatory and legal developments for trustees of small self administered pension schemes. IN THIS UPDATE: We highlight the effect of changes to the Annual and Lifetime Allowances and regulatory reporting requirements. p2 Reduction of the Annual and Lifetime Allowances from the 2014/15 tax year p2 New Lifetime Allowance Protections available - Fixed Protection 2014 and Individual Protection 2014 p2 Lack of knowledge is no defence against HMRC sanctions p3 Regulatory reporting requirements
LCP SSAS Update November 2013 2 Reduction of the Annual and Lifetime Allowances from the 2014/15 tax year As previously advised, the Annual Allowance (AA) will reduce from 50,000pa to 40,000pa from the 2014/15 tax year. In broad terms, the AA sets a limit on the amount of pension savings that can be made each year without triggering a tax charge. For money purchase pension schemes (including most SSASs), pension savings means contributions paid by, or on behalf of, the member. In addition, the Lifetime Allowance (LTA) reduces from 1.5m to 1.25m on 6 April 2014. The LTA relates to the value of total pension savings built up across all schemes. If an individual draws benefits worth more than the LTA they will pay extra tax on the excess when they draw them. Due to the potentially unintuitive way contributions are assessed for tax purposes, contributions paid now could be tested against the reduced AA and members may get an unexpected tax charge as a result. Trustees concerned about the reduced allowances should contact us for assistance. Members who believe they will be affected by the reduced LTA will want to consider the new LTA protections available that are summarised below. New Lifetime Allowance Protections available For members likely to be affected by the reduction to the LTA, two new forms of protection are available; Fixed Protection 2014 and Individual Protection 2014. Fixed Protection 2014 Fixed Protection 2014 (FP14) is a similar mechanism to the Fixed Protection 2012 (FP12) that was offered when the LTA was reduced to 1.5m. Individuals who apply for FP14 will continue to have an LTA at 1.5m; but such protection can be lost. Usually it requires individuals to stop further pension savings. Individual Protection 2014 Individual Protection (IP14) is available only to those with total pension savings from tax-registered pension schemes with an HMRC value of more than 1.25m at 5 April 2014. Individuals who qualify and apply will be given a personal LTA equal to that HMRC value, capped at 1.5m. Pensions saving can continue. Individuals can hold both of the new protections good news, because choosing between them could be difficult, and IP14 is a useful safety net in case FP14 is lost. Special rules apply to individuals who already hold existing LTA protections. Applications for FP14 can be made now either online or by post. They must be submitted to HMRC by 5 April 2014. Applications for IP14 cannot be made until the Finance Act 2014 is in place probably in August 2014. A number of SSAS members will need to consider whether to apply for the new protections. They might want FP14 (giving up any future contributions) or IP14 (if they qualify), or both. Any individual who meets the value qualification for IP14 may want to consider registering for it as a safety net. Lack of knowledge is no defence against charges HM Revenue & Customs (HMRC) require every scheme to have a Scheme Administrator ie someone who is responsible to HMRC for ensuring the SSAS is compliant with its rules. For LCP SSAS clients, the Trustees are the Scheme Administrator. In a recent legal case, the Scheme Administrator of a SSAS (who, in this case, was not a Trustee) lost an appeal against a 15,000 scheme sanction charge in respect of an unauthorised company loan of 100,000. The background to the case was that the Trustees made an unauthorised loan to the company, which led to HMRC imposing a 40,000 unauthorised payments charge on the company and the additional 15,000 scheme sanction charge on the Scheme Administrator. The Scheme Administrator, who was not made aware of the loan at the time, contested the charge on the basis that: the loan was made when pensions professionals were unfamiliar with the new regime; if he had been made aware he would have advised of the potential consequences; he took steps to assist the trustees to correct the position once aware; and the loan was repaid with interest at no loss to the scheme.
LCP SSAS Update November 2013 3 The Scheme Administrator s pleas in mitigation were turned down primarily because he did not have any systems in place to know what payments the trustees were going to make and so was in no position to advise the trustees of the consequences Although this case turned on the specific facts, it demonstrates the significant penalties that Scheme Administrators/Trustees can be exposed to. It would appear that unauthorised payments will incur tax charges regardless of intentions or post payment actions to correct the situation. We continue to encourage clients to talk to us before making new investments - especially employer related investments such as loans - so that we can ensure investments are authorised and so not subject to additional tax charges. Regulatory reporting requirements The Pensions Regulator s Scheme Return 2012-13 We understand that The Pensions Regulator (tpr) continues to request the completion of their scheme return on a rolling three year basis for schemes with two or more members. Although tpr usually provides trustees with notification of the requirement by post this is not always the case. Thus, we suggest that tpr s exchange system (via their website) is checked to see whether a return is due. The deadline for the completion of tpr s return is usually about a month from when they issue their notification. Normally, they only require basic details regarding the scheme (such as current trustee and employer details). The tpr s Scheme Return is a regulatory hurdle that Trustees could easily miss (resulting in an unexpected fine) but one that is not too onerous to complete. We can provide help, or can complete the return, for trustees who require assistance with tpr s scheme return. HMRC Registered Pension Scheme Returns for 2012/13 HMRC requires the Scheme Administrator to submit a Registered Pension Scheme Return when requested to do so and it appears that they have again issued notices to virtually all SSASs for the submission of Returns for the tax year ended 5 April 2013. Whoever has registered with HMRC online as Scheme Administrator should check the scheme s noticeboard on HMRC s website to see whether a notice has been received. The deadline for the online submission of the Return for 2012/13 is 31 January 2014. Failure to meet the deadline will result in an automatic fine. If LCP has been appointed as Authorised Practitioner we have already written to request the necessary information. If we have not been so appointed, the Scheme Administrator must complete the submission. Please ensure we receive a copy of the Return when submitted. We are happy to act as Authorised Practitioner if required please contact us. HMRC Event Report for 2012/13 In addition to their Scheme Return, HMRC requires an Event Report to be submitted if certain events occur during each tax year. On the following page we have set out some further information on the reportable events to help trustees determine whether or not an Event Report may need to be submitted. If there is any doubt as to whether an event that has occurred needs to be reported, please let us have details and we will advise accordingly. The deadline for the online submission of an Event Report for the 2012/13 tax year is also 31 January 2014 and failure to submit a required Report by the deadline will result in an automatic fine. Where we are aware that a reportable event has occurred we have already written regarding the next steps that need to be taken to submit the Report. If a reportable event has occurred and LCP has been appointed as Authorised Practitioner we can submit the Report. Otherwise the Scheme Administrator must arrange for the submission of the Report.
LCP SSAS Update November 2013 4 Event report The Regulations set out numerous separate events covering many areas, most of which are unlikely to apply to schemes ordinarily. However, to help the Scheme Administrator determine whether a report may be required, we have summarised below the type of events that require reporting. Generally, the reportable events fall into two main areas: scheme events and member events. Please review the following list and if you think any of these may have occurred during the 2012/13 tax year please let us know as a matter of urgency so that we can advise whether it needs to be reported. Scheme events Unauthorised payments 1. The purchase or sale of any Taxable Property 2 (or, if already held, any income received from such property), at any time during the tax year. A change in membership between certain bands (ie where the number of members has increased above 10 or fallen below 11 or become 0). The wind up of the scheme. Member events A member commences receipt of their benefits before normal minimum pension age - normally only possible on ill-health grounds. Commencement of benefits where the member s funds from all schemes have exceeded the Lifetime Allowance and the member has relied on either Primary, Enhanced or Fixed protection. A lump sum is paid to a member who has Primary, Enhanced or Fixed protection. A lump sum is paid to a member that represents more than 25% of their Accumulated Credit (ie share of the fund). Payments of pension via Flexible Drawdown. Lump sum death benefit payments that amount to more than 50% of the Standard Lifetime Allowance that was applicable on the date of the member s death or that have been paid after the member died after reaching age 75. The transfer of benefits to an overseas pension scheme. 1 An unauthorised payment is a legally defined term but includes, for example, a loan to a scheme member or payment of a pension in excess of the maximum permitted. 2 Taxable Property is a legally defined term but includes, for example, residential property, works of art etc. If in doubt, please contact us.
Any questions? If you would like any assistance or further information on the contents of this SSAS update, please contact Peter Clarke, Patrick Moriarty or the partner who normally advises you at LCP via telephone on +44 (0)20 7439 2266 or by email to enquiries@lcp.uk.com. Peter Clarke Senior Consultant peter.clarke@lcp.uk.com +44 (0)1962 872703 Patrick Moriarty Associate Consultant patrick.moriarty@lcp.uk.com +44 (0)1962 873339 This SSAS Update is based on our current understanding of the subject matter and relevant legislation which may change in the future. Such changes cannot be foreseen. This document is prepared as a general guide only and should not be taken as an authoritative statement of the subject matter. No responsibility for loss to any person acting or refraining from action as a result of any material in this SSAS Update can be accepted by LCP. LCP is a firm of financial, actuarial and business consultants, specialising in the areas of pensions, investment, insurance and business analytics. LLP London, UK Tel: +44 (0)20 7439 2266 enquiries@lcp.uk.com LLP Winchester, UK Tel: +44 (0)1962 870060 enquiries@lcp.uk.com Belgium CVBA Brussels, Belgium Tel: +32 (0)2 761 45 45 info@lcpbe.com Ireland Limited Dublin, Ireland Tel: +353 (0)1 614 43 93 enquiries@lcpireland.com Netherlands B.V. Utrecht, Netherlands Tel: +31 (0)30 256 76 30 info@lcpnl.com UAE Abu Dhabi, UAE Tel: +971 (0)2 658 7671 info@lcpgcc.com All rights to this document are reserved to LLP ( LCP ). This document may be reproduced in whole or in part, provided prominent acknowledgement of the source is given. LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. LLP is a limited liability partnership registered in England and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of LLP. A list of members names is available for inspection at 95 Wigmore Street W1U 1DQ, the firm s principal place of business and registered office. The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. The firm is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are licensed by the Institute and Faculty of Actuaries. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. UAE operates under legal name Belgium Abu Dhabi, Foreign Branch of Belgium. LLP.