This is the fourth edition of the Pensions Tax Simplification Newsletter. The Newsletter keeps pension providers, employers and savers informed of new developments before A-Day. If you are a pension provider or an employer, please make sure that the appropriate people in your organisation read it.
As from 6th April 2007 all Retirement Annuity Contracts (RACs) currently in payment and those coming into payment after that date will be taxed under PAYE. This will put them on the same basis tax-wise as all personal pensions. However to enable a smooth changeover to be made at April 2007, each Provider will have to operate a separate PAYE scheme for all RACs. Where however it would be advantageous to merge RACs into existing Personal Pensions PAYE schemes after the changeover has been completed in April 2007, HMRC will work with Providers to achieve this at a convenient date.
HMRC is already working with Providers on the preparatory work which has to be undertaken.
We have tried to identify and contact all RACs Providers, but if you are a Provider and have not received any communications from us since February 2005, please email your contact details as a matter of urgency to
Further information will be posted on the HMRC Internet over the coming months.
New chapters of the manual have now been published covering contributions and tax relief, annual allowance, investments, member benefits, lifetime allowance and transfers. This means that 10 out of the 14 technical chapters are now available on the Internet. The remaining 4 chapters will be available by early November.
Due solely to a technical hitch we were unable to publish the Guidance on employer contributions at the same time as the guidance on employee contributions. The employer contribution guidance will now be published in November although we hope to have a PDF version available at an earlier date.
It has also been drawn to HMRC's attention that the example contained at RPSM 07102280 demonstrating the process to go through to arrive at the cost of a benefit where a member of a pension scheme is allowed to live in a property owned by the pension scheme is incorrect.
The example states that a charge will be due even if the member pays a commercial rent for use of the property. This is not how the legislation is intended to work. We are taking steps to remove the example from the manual and regret the inclusion of this error in the meanwhile.
Progress with the printable version of the manual is going well. PDF downloads should be available in October.
The following link takes you to the announcement on a new regulation relating to de-mutualisation payments (item now removed 26/07/06). We intend to publish a draft of the regulations shortly.
Approximately 70% of the regulations have now been published in draft. The latest tranche was published 21 September. We are taking on board representations made by the industry, and we aim to publish all of the remaining Regulations in the next few months.
We have been very pleased with the interest shown in these workshops which began on the 27 September. These workshops are aimed at people working in the pensions industry with the objective of helping them prepare for A-Day and giving them the information they need to prepare for the operational changes that the new regime will bring. The workshops have been developed in consultation with representatives from the pensions industry. The presentational material supporting these workshops will be available in due course on the Internet to enable the cascading of this information. If you would be interested in attending one of these workshops please contact your representative body.
We are also presenting some workshops for independent financial advisers together with their representative bodies to cover the operational aspects of the new regime. Again if you are interested in attending please contact your representative body.
In January 2004 we established the Pensions Industry Working Group (PIWG) as a consultative body comprising key industry stakeholders to work alongside the simplification project. The group meets every 6-8 weeks and includes representatives from the main pensions industry representative bodies and their IT support. More details about this group and the representative bodies that attend can be found in Newsletter No 2.
We now intend to publish the minutes of these meetings on the Internet and hope to publish the notes of the September 21st meeting shortly. We will alert you via an entry on the 'What's New' front page of the HMRC website when these are available.
In April 2005 we published draft versions of the main forms that will be in use from April 2006. These will be updated in the next few weeks to reflect any changes that have been made and we will let you know when we have done this via a message on the 'What's New' front page of the HMRC website.
We also intend to publish draft copies of additional forms in the next few weeks. These will support the maintenance of pension scheme information post A-Day. This will provide practitioners and pension scheme administrators with information on how to update their scheme records either online or by post. Again we will let you know via a message on the front page of our website.
In Newsletter 2 we gave details about the voluntary exercise, aimed at self administered schemes, for pre-registration of Scheme Administrators and authorisation of Practitioners, in readiness for A-Day. The first stage of this exercise - where we have made contact by ‘phone with Practitioner organisations who have clients with self-administered schemes - is nearing completion and we will shortly be e-mailing our contacts with further information including the templates for completion, and signature by Scheme Administrators. The timeframe for the exercise has now been extended to 31 January 2006 (from 6 January 2006).
Please telephone our pre-registration helpline on 0115 974 1666 if you have any queries about the exercise.
We would like to confirm that any post-A Day contributions made by or in respect of an individual with an 'other' money purchase arrangement (that is, a money purchase arrangement that is not a cash balance arrangement) will invalidate enhanced protection. This includes any contributions made for the purposes of providing life cover for the individual, whether funded within the arrangement or by means of a policy with an insurance company. Such contributions will comprise 'relevant benefit accrual' under paragraph 13 of Schedule 36 Finance Act 2004.
But if, after A Day, the scheme uses any pre-A Day funds to provide or increase life cover for the individual within an existing arrangement, this will not invalidate enhanced protection.
Please note that certain pages in chapter 3 of the Registered Pension Schemes Manual - Protecting members' rights from tax charges - still need to be updated to reflect the revised definitions of cash balance arrangements and other money purchase arrangements. The correct interpretation of these terms can be found in the glossary and section RPSM09100200.
We would also like to confirm that for the purposes of tax relief for employers, the new rules in sections 196-200 Finance Act 2004 apply to accounting periods (or, for unincorporated businesses, periods of account) ending on or after 6 April 2006. So, for example, an accounting period that commenced on 1 July 2005 and will end on 30 June 2006 will be within the new rules.
We recognise that the move to a wholly and exclusively test is a significant change in approach. We will be publishing guidance for inspectors in advance of 6 April 2006 which will say that inspectors who want to query the allowability of an employer deduction should first seek guidance from APSS. The general guidance on the meaning of wholly and exclusively can be found in the Business Income Manual at BIM37000 onwards.
If you have any questions about anything to do with tax rules for pensions and you cannot find the answer in the Registered Pension Schemes Manual, you can contact us by email, phone or write to us using the details found on our contact page.