11 December 2000
DELIVERING INDIVIDUAL PENSION ACCOUNTS
The new, flexible individual pension account savings vehicle (IPA) will be even more attractive to savers with a concession exempting certain transactions from stamp duty reserve tax (SDRT), Economic Secretary Melanie Johnson said today. Measures announced by Miss Johnson also ensure that there will be no new regulatory burden on the pension and funds industries managing IPAs, and that the pensions industry will be able to offer IPAs to savers from 1 April 2001, alongside stakeholder pensions. Miss Johnson said:
?Our proposals to offer pension savers secure, flexible, value for money personal pensions have been widely welcomed.
?I am pleased to announce a package of measures which will ensure that the pensions industry will be able to finalise the design of IPA products to make them available to savers on time in April next year.
?These include legislation for the stamp duty reserve tax concession, announced in July, which will allow pooled funds to compete in the pensions market on a level playing field with other products.
?Together, these measures to define, tax and regulate appropriately this valuable new option for savers will deliver the framework for modern pooled funds to offer modern pensions to meet the requirements of both today and tomorrow's pension savers.?
The measures announced today are :
- legislation in the next Finance Bill to exempt from stamp duty reserve tax transactions in units in collective investment schemes held in IPAs;
- secondary legislation under the Financial Services and Markets Act 2000 and consultation by the Financial Services Authority on rules under which IPAs will operate;
- Inland Revenue regulations, already consulted on, that will define the IPA and make clear that managing IPAs will impose no new regulatory burden on the pensions and funds industries.
NOTES FOR EDITORS
1. Miss Johnson announced the detail of the proposals to deliver IPAs in answer to a Parliamentary Question from Russell Brown MP (Dumfries).
2. Proposals for IPAs were originally outlined in the joint Treasury-Department of Social Security publication ?Helping to Deliver Stakeholder Pensions - Flexibility in Pension Investment? in February 1999 (Treasury press release 24/99). The working title for the product at that stage was ?pooled pension investment? (PPI).
3. In August 1999, Miss Johnson announced that the new PPIs would be launched to coincide with stakeholder pensions in April 2001 (Treasury press release 127/99).
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4. In July 2000 the Treasury and DSS jointly published a paper outlining the key features of the IPA and seeking views on a small number of issues remaining following earlier consultation with pension providers and pension savers? representatives Treasury press release 88/00
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5. Media enquiries should be addressed to Charles Keseru in the Treasury press office on 020 7270 5188.
ANNOUNCEMENT
Individual Pension Accounts
In July 2000 the Treasury and DSS jointly published plans for the Individual Pension Account ("IPA"), to be launched alongside stakeholder pensions in April 2001.
That paper set out broadly what the IPA would be. It also explained that the Government had work to do on the detail and asked for input from interested parties on a number of issues.
Following a strong welcome for the IPA, some helpful contributions from the pensions and funds industries and further work, the Government is now in a position to say what action will be taken to create the right environment for the successful launch of IPAs.
Defining the IPA The draft definition was published on 15 September 2000 by the Inland Revenue in the draft of The Personal Pension Schemes (Restriction on Discretion to Approve) (Permitted Investments) Regulations 2000. Following a positive response to the draft, it will remain substantially unchanged. The final regulations will be laid later this year.
Changes that will be made will ensure that:-
shares in UK authorised open-ended investment companies are eligible investments (their omission in the draft was an oversight); the only recognised collective investment schemes that will be eligible will be those recognised under Section 86 Financial Services Act 1986, ie those constituted in other member states.
Some concern has also been expressed that pension schemes using IPAs could fall within the definition of a Self Invested Personal Pension ("SIPP") because of the level of discretion over investment decisions given to the individual scheme member. Where this is the case, however, no additional requirements will be imposed because of the nature of the investments permitted within the IPA.
Regulating IPAs IPAs will not be separately regulated products. They will not be investments themselves, but arrangements whereby investments in eligible assets are made by pension schemes for the benefit of their individual members.
Nor will IPAs be collective investment schemes: this will be specified in the Collective Investment Schemes Order to be made next year under the Financial Services and Markets Act 2000. The Financial Services Authority ("FSA") will consult on achieving the same position under current legislation for the period between the launch of IPAs and the coming into effect of the new Order.
However, IPA-eligible assets may only be purchased for pension schemes by persons engaging in investment business authorised by FSA. For example, the IPA may be provided within a stakeholder pension scheme where the scheme manager must be conducting a regulated activity. And the funds might be managed by a separate fund manager whose operations would also be regulated activities.
Discussion with FSA has established that there is therefore no need to introduce a new layer of regulation for any aspect of running IPAs. Nor do the administrative activities involved demand this level of regulation.
Accordingly, the draft of The Personal Pension Schemes (Restriction on Discretion to Approve) (Permitted Investments) Regulations 2000 will be amended to remove the requirement for an FSA-authorised IPA manager.
FSA intends to publish a consultative paper early in the new year on such issues as notification to the Authority by firms administering IPAs and the information concerning IPAs which it is appropriate to give to investors in stakeholder and other pension schemes.
The Stamp Duty Reserve Tax Exemption the July 2000 paper announced that the Government intends to exempt transactions in collective investment schemes from stamp duty reserve tax ("SDRT") where the units and shares involved are held in IPAs. This will remove a significant distortion in the competition between unit-linked life insurance-based products and pensions using pooled funds.
The task has been to identify a means for IPA providers to access the stamp duty reserve tax exemption for their funds within their broader business frameworks, but also within regulatory constraints and recognising developments in the pooled funds industry.
In consultation with the industry and technical specialists the most suitable way to do this has been found to be through exploiting the availability of different classes of shares in open-ended investment companies ("oeics"). And the exemption will also be open to unit trusts, but in more limited circumstances.
IPAs will be able to hold shares in oeics that are also available to other investors, for example ISA savers. But if these different classes of investor hold different classes of share, they will be able to invest in the same sub-funds of the oeic. The SDRT exemption will apply to transactions in the IPA share class only.
For unit trusts the exemption will be available where all units in the unit trust (or sub-fund of the unit trust) are held within IPAs. The FSA has now said that it expects to consider whether classes of units in an authorised unit trust should be permitted in a similar fashion to oeic share classes, but will not be in a position to do so until the second half of 2001.
However, the Government is confident that, in framing an exemption that allows existing oeics to provide IPAs in a tax-privileged environment, it is facilitating the widespread use of modern pooled funds for pension provision.
To bring about these exemptions the Government will bring forward legislation in the next Finance Bill. This will not prevent the exemption being in operation in time for 1 April 2001. The legislation will be retroactive, and full details of the mechanics will be announced before April 2001.