PFS news update from 14 January 2015 - 27 January 2015 covering
taxation, pensions and investments.
Taxation and Trusts
Taxation and trusts
Online wills database made available to the
HM Courts & Tribunals Service has launched a new online database which will allow members of
the public to search for and obtain electronic copies of historic
Wills within 10 working days and without having to either attend
the probate registry or pay a search fee.
The database, which is populated with 41 million scanned
documents, can be searched for Wills and grants of representation
relating to Wills proved in England and Wales dating back to 1858.
To use the basic search facility, only surname and year of death
are required although records can be narrowed down using the
advanced search facility where further information (such as date of
death and first name) is available. New probate records will appear
online approximately 14 days after a grant of representation has
Electronic copies of records can be obtained at a cost of £10
A Will remains a private document, rather than a public
document, unless and until a grant of probate is made. After this
time, the Will becomes a public document and anyone can apply for a
copy of it.
The new database provides a fantastic resource for family
historians and researchers who will now be able to quickly find
Wills dating back as far as 1858 without the inconvenience of
having to either attend the probate registry in person or incur the
additional costs associated with an application for a general
Consultation on early closure for tax
The consultation broadly examines the current
enquiry process and the restrictions it puts on HMRC when resolving
one or more aspects of an enquiry. HMRC is seeking views on how to
streamline the tax enquiry process so that certain parts of an
enquiry can be closed in cases where it is not appropriate to close
the entire enquiry. The current rules are inflexible and enquiries
can take a long time to settle.
The proposals also include changes to rules so that earlier
payment can be made in respect of aspects of the enquiry which has
been successfully concluded by HMRC.
This consultation proposes changes to the
self-assessment enquiry framework in respect of income tax,
including National Insurance contributions (NICs) Class 2 and 4 in
certain circumstances, capital gains tax and corporation tax.
The consultation will run until 12 March 2015 and
it will be interesting to see whether any changes are made.
Class 2 NICs will be payable via
Currently, Class 2 National Insurance contributions (NICs) are
payable through a bank, post office or by post. From April 2015,
most self-employed people will be able to pay their Class 2 NICs
through self-assessment, together with any income tax and Class 4
NICs that are due.
As a result HMRC is no longer accepting any new direct debit
applications to pay Class 2 NICs. Instead, HMRC will be writing to
taxpayers to explain that instead of setting up a direct debit, a
request for payment will be sent in April 2015 asking for payment
of any outstanding contributions up to 11 April 2015.
These planned changes from April also mean that clients will no
longer need to apply or re-apply to defer payment of Class 2 and
Class 4 contributions; and any new applications to defer payment
will not be processed.
This measure comes as a result of the Government wishing to
simplify the way in which self-employed people pay their NICs -
essentially payment of income tax and NICs through self-assessment
should result in a more 'joined-up' system which is easier to
follow as both taxes will be aligned with one another.
The Office of the Public Guardian plans overhaul of
regime for supervision of deputies
The Public Guardian has presented a report to Parliament
outlining its plans for a brand new regime which will transform the
way it supervises Court- appointed deputies. The report contains
proposals for annual deputyship plans, asset inventories and
charging estimates - addressing concerns raised by MPs over the
high charges levied by some professional deputies.
In August 2014, the Government issued a response to its
consultation, 'Transforming the services of the Office of the
Public Guardian - enabling digital by default' which ran from 15th
October to 26th November 2013 and was informed by the findings of a
fundamental review carried out by the Office of the Public Guardian
(OPG) into the way that Court-appointed deputies are
The review was driven by a number of factors including
unprecedented and continuing growth in the number of cases under
supervision; concerns surrounding some of the charges being made by
professional deputies in specific cases as well as the introduction
of the Care Bill and the launch of the Government's 'Dementia
The OPG is now actively planning the implementation of a range
of measures which, together, constitute a brand new delivery model
for how it supports and supervises Court-appointed deputies and has
presented its recommendations to Parliament in a 35-page report.
Features of the proposed new model include:
- Staff who have been fully trained to support, supervise and
specialise in a particular deputy type;
- Better control of professional deputy charges through annual
plans; asset inventories; estimates of charges; fuller annual
reporting; and the better understanding of the professional deputy
caseload resulting from the specialist teams building their
knowledge and relationships;
- Standards for professional and local authority deputies which
set out good practice;
- Targeted visits to deputies who need face-to-face support;
- Better guidance for people who apply to the Court of
Some changes have already taken effect (most notably the
segmentation of supervisory staff into separate teams dealing with
lay, local authority and professional deputies); while other
measures will continue to be deliberated with a view to
implementation during this year. The OPG will launch a public
consultation on the fees charged for supervising deputies this
Deputies are appointed by the Court when a person loses their
mental capacity and has given no other person the authority to make
a decision on their behalf. The new delivery model for
Supervision is designed to provide a high level of assurance
that people lacking mental capacity who are under a deputyship
order are being protected and their needs are being met.
The full texts of the EU's Fourth Money Laundering
Directive are now available
The agreed texts of the EU's Fourth Money Laundering Directive and its associated regulations are now available.
As a reminder, the Directive will not force the public naming of
trust beneficiaries which comes as welcome news after
representative bodies pointed out that trusts were regularly used
to protect vulnerable beneficiaries, some of whom could be at
significant risk if their identities were published.
It is likely that the development of public registers for
companies and foundations will produce some significant challenges
and it will be interesting to see how this progresses.
Have your say
The Government encourages open and transparent policy-making
and, to this end, is seeking your views on what you would like to
see in Budget 2015 - which will take place on Wednesday 18
Your views will be considered by HM Treasury as part of the
policy-making process and should be submitted by Friday 13 February
More information is on the HMRC website.
A record number of self-assessment returns
With self-employment on the rise in the UK, it is estimated that
11.2 million people need to fill out a self-assessment tax return
for 2013/14 - which is a higher figure than ever before.
In addition, this is the second year in which those with a high
income (£50,000 or more) and in receipt of child benefit (or whose
partner receives child benefit) are now required to file a
self-assessment return. This further increases the number of
returns which are required to be filed.
It appears that those aged between 18 and 20 and living in
London are likely to be the worst offenders for filing their return
late whereas figures from last year showed that the over 65s were
the most punctual.
Taxpayers who miss the 31 January deadline will be fined £100,
whether or not they actually owe any tax. If the return is still
outstanding after three months a charge of £10 per day for the next
90 days will be applied.
The transfer of ISA benefits to a surviving
Following the announcement in the Autumn Statement regarding the
ability to transfer ISA benefits to a surviving spouse/civil
partner on death, the Government has now published a policy paper and draft regulations to implement this
Broadly, this measure will enable, from 6 April 2015, the spouse
or civil partner of a deceased ISA saver, where death occurred on
or after 3 December 2014, to benefit from an additional ISA
allowance and therefore to have more of their savings in a
Under the new rules, individuals will be permitted to save an
additional amount in an ISA, up to the value of their spouse or
civil partner's ISA savings at the time of death, without this
amount counting against the surviving spouse's/civil partner's
normal ISA subscription limit.
The new 0% starting rate of income tax - A practical
At Budget 2014, the Government announced that it would be
abolishing the 10% starting rate of tax for savings income with
effect from 6 April 2015 and replacing it with a new 0% rate to
provide further support for low earners. In conjunction with this,
the amount of income to which the starting rate will apply is to be
increased from £2,880 to £5,000 so that, in tax year 2015/16, those
with a total income of less than £15,600 (£10,600 personal
allowance for 2015/16 plus the new 0% starting rate band) will pay
no tax on their savings. This article provides an overview of how
the 0% starting rate band will operate and a reminder of the
planning opportunities available to savers.
The basic position
From 6 April 2015 the 10% rate that currently applies to savings
income falling within the starting rate band of £2,880 will be
abolished and replaced with a new 0% rate that will apply to the
first £5,000 of savings income received by those with a total
income below the sum of their personal allowance and the new £5,000
'nil rate' band.
As non-savings income is always taxed before savings income, the
new tax-free £5,000 starting rate band can only apply to those
earning less than the total of their personal allowance and the 0%
starting rate band. For most people this means that earned
(non-savings) income must be below £15,600 (2015/16). However, the
figure may be higher for people born before 6 April 1938 or those
entitled to married couple's allowance or blind person's allowance.
Eligible savers will be able to register with their bank or
building society for tax-free savings by completing a form R85.
The eligibility rules for completing a form R85 currently mean
that an R85 can only be completed by a saver whose total taxable
income for the tax year will be below their tax-free personal
allowance. However, from 6 April 2015 these rules are also changing
to ensure that any saver who is unlikely to be liable to tax on any
of their savings income in the tax year can complete an R85 and
register to receive interest without tax deducted - even if they
pay tax on other (non-savings) income.
In practice this means that, if a saver's total taxable income
will be below the total of their tax-free personal allowance plus
the £5,000 starting rate limit for savings then, from 6 April 2015,
they can register to have interest paid on their accounts, without
tax deducted, using form R85. A separate form R85 must be sent to
each institution with which an account is held.
Note, however, that because form R85 can still only be used
wherenotax is likely to be payable on savings income, in cases
where total income is greater than £15,600 but earned income is
below £15,600 (so thatsometax is payable on interest), registration
for tax-free savings will not be allowed. In these cases it will be
necessary for the overpaid tax (i.e. up to the overall £15,600
threshold) to be claimed back from HMRC using form R40 or under
Karen receives £14,000 per year from job as a teaching
assistant. Her tax-free personal allowance is £10,600 for the tax
year 2015/16, so she will pay basic rate tax on £3,400 of her
earnings. Karen also receives a further £2,000 a year in interest
from cash held on deposit, bringing her total income up to £16,000
As her total income is greater than £15,600, Karen is not
eligible to register for tax-free savings. However, because the
personal allowance and the starting rate band are not taken up
entirely by earned income, she will be able to claim back the basic
rate tax deducted at source from £1,500 of her gross savings income
by filling out a form R40 and sending it to HMRC.
What is savings income?
For the purpose of the 'starting rate for savings' (ITA 2007
s12) income falling within the definition of "savings income" (ITA
2007 s18) includes:
- interest from bank and building society accounts;
- interest distributions from authorised unit trusts and
open-ended investment companies;
- income which is not interest, such as the profit on government
or company bonds which are issued at a discount or repayable at a
- the interest element of purchased life annuity payments;
- gains from policies of life insurance (onshore and
While it is possible for eligible savers to register with banks
and building societies to have interest from their accounts paid
gross (i.e. without tax deducted), other forms of savings income
may, by their nature, have to be paid net of basic rate tax. In
many cases, it will be possible for a non-taxpayer to reclaim the
overpaid tax by self-assessment or by completion of a form R40.
However, this may not always be possible (for example, in the case
of onshore bonds where the basic rate tax credit represents the tax
deemed to have been paid on the underlying funds and is not
Note that savings income for the purposes of s12 ITA 2007 does
not include (inter alia):
- Dividend income;
- Rental income;
- Pension income;
- Income received from a discretionary trust; or
- Foreign income charged to tax on the remittance basis
Simple planning strategies
Simple planning strategies to make use of the starting rate band
1. Transferring assets between spouses to ensure that:
- a non-earning spouse receives savings income of £15,600 to
facilitate full use of his or her personal allowance and starting
rate band of £5000; and
- a spouse in receipt of earned or pensionable income below
£15,600 receives sufficient savings income to ensure that the
starting rate band is fully utilised
2. Investment in non-income producing offshore investment bonds
- chargeable event gains qualify as 'savings income' for the
purpose of the starting rate band which means that where the bond
is encashed by a non-taxpayer, up to £15,600 (tax year 2015/16) of
the gain could be tax-free. The non-taxpayer for these purposes
could include a non-earning spouse or adult child of university
For added control, the bond investment need not be
transferred into the ownership of the ultimate recipient until the
encashment is to take place. Assignment by way of gift is not a
chargeable event and, provided the gift is made with no strings
attached (i.e. the donee is able to use the funds as he or she
pleases), there should be no adverse tax implications for the
Note that this strategy will not work with an onshore bond due
to the fact that basic rate tax is deemed to have been paid at
source and the gain is therefore only subject to tax at the higher
and additional rates with no reclaim of tax deducted at source
The Government expects around 1.5 million individuals to
potentially benefit from a tax reduction on their savings income,
and around half of these individuals to benefit by more than £50
per year. It estimates that over one million individuals will no
longer be liable for tax on any of their savings income as a result
of this change. Allowing eligible savers to register with a bank or
building society for interest to be paid gross (without tax
deducted) will remove the need for many to reclaim tax from HMRC,
and will therefore provide a significant simplification. As well as
savers with low overall incomes, this measure will also benefit
some individuals with average or higher incomes whose income is
primarily interest on savings.
Details of how to register for interest to be paid without tax
deducted after 6 April 2015, and the relevant R85 form are expected
to be published shortly.
Consultation on an increased minimum period for which
the remittance basis charge applies
In last year's Autumn Statement, the Government announced it
would consult on making the claim to pay the remittance basis
charge apply for a minimum of 3 years.
This consultation is aimed at understanding why
individuals choose not to pay the remittance basis charge each year
and why this can change from year to year.
It also seeks views on how a minimum claim period for the charge
might apply and considers alternatives that would also meet the
The consultation period runs until 16 April 2015.
This area of taxation can be complicated and those falling into
this category would need to make a choice between paying tax on the
arising basis, i.e. on all income and gains wherever they arise, or
on the remittance basis. Of course, the remittance basis of
taxation is ideal for clients who have substantial offshore income
and gains which would otherwise result in a higher liability to tax
if they were taxed on the arising basis and therefore the ability
to make a choice has been valuable. If this change is implemented
then non-UK domiciled individuals will be more restricted as they
would have to pay the charge for a set period that is longer than
the current one-year period.
Review of UK consumer price statistics
The UK Statistics Authority has published an independent review
of UK consumer prices statistics.
Paul Johnson is Director of the Institute for Fiscal Studies, a
job once held by Sir Andrew Dilnot, Chair of the UK Statistics
Authority (UKSA). It is therefore not surprising that the UKSA
commissioned Mr Johnson to produce a review of UK consumer price statistics. The
review was prompted by the fall-out from the former National
Statistician's earlier consultation on the future of the Retail
Prices Index (RPI), which was demoted from being a National
Statistic in March 2013.
Paul Johnson's paper makes two dozen recommendations,
- Office for National Statistics should move from
CPI to CPIH as the main inflation measure. The Consumer
Price Index (CPI), which is the Government's preferred inflation
yardstick and EU benchmark, does not include owner-occupied housing
costs. CPIH, which was introduced in 2013, rectifies this omission
and is thus the nearest readily available and reliable alternative
to the discredited RPI.
- The Government and regulators should work towards ending
the use of the RPI as soon as practicable. As RPI does not
have an official status, its continued existence is only justified
by the fact that the Index is hard-wired into many contracts,
notably £470bn of index-linked gilts. However, where the RPI is
currently used for the basis of price increases (eg rail fares,
water charges), the Government could move to CPIH when the next
round of adjustments is made.
- Take more care with weightings. The weightings
of various items in an index can produce distortions because the
National Accounts data on which the weightings are based are
inevitably historic. Johnson quotes the example of gas and
electricity, where the severity of the winter two years ago impacts
thecurrentweighting of domestic fuel in the index. His proposed
solution is to use more than one year's set of National
- Include Council Tax in the CPIH. Council Tax is not
included in the CPI or CPIH, the reason being that direct taxes
(like income tax) are deemed not appropriate for a price index and
council tax is, for this purpose, classified as a direct tax.
However, council tax can be viewed as standing in place of VAT (an
indirect tax) on housing and VAT is in the indices.
Inflation has fallen out of the political
limelight, so now is probably a good time to bring its measurement
properly up to date. But with the longest index-linked gilt running
to 2068, the RPI will not completely disappear for a very long
The December inflation numbers
Inflation on the CPI measure halved between November and
December, bringing the rate down to 0.5%, its lowest since May
2000. The December inflation numbers from the Office for National Statistics
(ONS) were well below market expectations of about 0.7%, but still
leave UK inflation in positive territory, whereas Eurozone
inflation has dropped to -0.2% according to provisional estimates.
The CPI showed prices were flat over the month, whereas between
November and December 2013 they rose by 0.5%.
The CPI/RPI gap widened slightly this month,
with the RPI dropping 0.4% on an annual basis to 1.6%. Over the
month, the RPI rose by 0.2%.
The CPI annual rate fall from November to
December was driven by three main factors according to the ONS:
- Housing & household services: Overall prices were
unchanged between November and December this year, compared with a
rise of 2.3% between the same two months a year ago. The majority
of the downward contribution came from price movements for gas and
electricity, where there were price rises from a number of the main
suppliers a year ago, but none in 2014.
- Transport: Overall prices fell by 0.2% between
November and December 2014, compared with a rise of 1.0% between
the same two months in 2013. Almost all of the downward
contribution came from the plummeting price of petrol and diesel.
The ONS says that the average price per litre was 116.8p for petrol
and 122.9p for diesel, compared with peaks of 141.6p and 147.7p
respectively recorded in April 2012. Last month's fuel price falls
alone were worth about 0.15% off the CPI.
- Alcohol & tobacco: Overall prices fell by 0.2%
this year compared with a fall of 1.2% between November and
December a year ago. The ONS believes that this is a Christmas time
shift issue - in 2014 prices fell in November, whereas usually the
fall occurs in December.
Inflation is likely to fall again in January.
Petrol prices are still dropping fast (oil was below $45 a barrel
when the inflation numbers were published).
The latest inflation drop will prompt the first exchange of
correspondence between the Governor of the Bank of England and the
Chancellor on anundershootingof the inflation target. In the past
the letters would have been published almost simultaneously with
the ONS data, but the Bank can now delay picking up its pen until
the minutes of the next Monetary Policy Committee (MPC) meeting are
issued (18 February). It looks likely that the February meeting is
going to be in no rush to raise base rate, now that it matches
National Savings & Investments have announced that the Pensioner Bonds trailed in
the March Budget and re-announced in December are on sale from 15
The Bonds are available to purchase online, by
phone (0500 500 000) or by post. Application at a Post Office is
The very attractive terms on offer mean that
both the one and three-year issues are likely to sell out quickly.
The total issuance is £10bn.
Mid January's 0.5% inflation figure has strengthened the
possibility that there will be no base rate increase until next
year. It has also underlined that the Pensioner Bond rates are much
higher than they need to be.
The European Central Bank (ECB) has announced that it will begin quantitative
easing (QE) in March. But whether this move would make any
difference to the Eurozone economies is unclear.
Taken together with other schemes the ECB is
running to buy private sector debt, it means that from March the
ECB will be pumping €60bn a month into the Eurozone. The informed
view beforehand had settled on a €50bn figure. The ECB will buy
bonds issued by Eurozone central governments, agencies and European
institutions in the secondary market. As was widely expected
(because of German views), the individual central banks of each
Eurozone country will have to indemnify the ECB against any losses
on their country's government bonds. However, there will be risk
sharing between the Eurozone members for non-government debt (which
should account for 12% of ECB purchases).
The ECB says that its actions signal "the
Governing Council's resolve to meet its objective of price
stability in an unprecedented economic and financial environment."
Translated from Eurospeak, what the ECB is trying to do is push
inflation back up towards its "below, but close to, 2%" medium-term
target. January 2015's Eurozone inflation reading was -0.2%: the
rate has been below 1% since October 2013.
Will it work? There are widely differing
opinions on the answer.
Whereas QE in the USA and UK was designed to
drive down medium and long-term interest rates, these have already
sunk to historically low levels in the Eurozone: even Italy has to
pay only 1.69% on 10 year government bonds. In terms of
pump-priming the Eurozone economies by an injection of cash, it is
arguable that it is not a shortage of money but an unwillingness to
invest which is holding back the Eurozone.
On the other hand, QE should depress the value
of the euro (already €1.32 against the pound), which should help
exports to those countries outside the Eurozone. There is also a
feeling that QE had to be tried because everything else has, so
It is arguable that this announcement will do nothing because
most of its contents had been anticipated and priced in by the
markets. This is the lesson from QE in the USA, albeit under rather
Retail Prices Index - Thoughts on
Deflation is the word of the moment, but what does is it mean?
The answer is not as simple as "falling prices".
One of the reasons why the European Central Bank (ECB) has
belatedly decided to embark on quantitative easing - see the
previous article - is the spectre of deflation. Prices in the
Eurozone fell by 0.2% in the year to December and this month's
figure is expected to be around -0.5%. The ECB's target is for
inflation to be "below, but close to 2% over the medium term", but
Eurozone inflation has been below 1% since October 2013.
But do the negative CPI numbers really mean deflation? The
answer is relevant not only to the Eurozone, but also potentially
the UK, where the CPI could be nudging negative territory soon - it
has only 0.6% to go.
While deflation is often thought of as simply the opposite of
inflation, economists have a more nuanced definition. Typically,
the economist's concept of deflation is a prolonged period of
pervasive declining prices.This type of deflation normally goes
hand-in-hand with minimal or negative economic growth, such as
Japan has experienced for much of the last 20 years. If declining
prices are widespread, the danger is that consumers do not spend
and businesses do not invest: goods and services will be cheaper
tomorrow than they are today, so why not wait?
The Eurozone and the UK are not experiencing that type of
corrosive deflation yet. Arguably, both are more truly suffering a
benign negative inflation. What has driven the year-on-year numbers
down has been the fall in oil and fresh food prices. Look at the
Eurozone and the -0.2% CPI inflation figure becomes core inflation
of +0.8% once the volatile components of energy, food, alcohol and
tobacco are stripped out. In the UK it is a similar story: the core
inflation rate is currently 1.3% androse0.1% in December, whereas
the CPI dropped 0.5%.
As several commentators have remarked, the fact that petrol
prices are dropping each week does not prompt Joe Public to delay
purchases of goods and services generally. Indeed, the cheaper
petrol is the equivalent of a tax cut, increasing net spendable
income and potentially boosting the economy. In the UK at least
things are still quite buoyant.
There's deflation and deflation: so far we have the nice
version, not the nasty one.
Pensions flexibility: QROPS changes
The Taxation of Pensions Act 2014 makes changes to the rules for
individuals who have enjoyed tax reliefs on a pension scheme that
currently forms part of a non-UK pension scheme (such as a QROPS).
This will ensure that the flexibilities and restrictions to relief
will apply equally to the "relieved part" of the QROPS.
- There will be an extension to the scope of the existing power
to make regulations in connection with information requirements for
the scheme managers of qualifying recognised overseas pension
schemes (QROPS). The amendment provides that regulations made under
this power may also require the scheme manager of a QROPS or former
QROPS to provide information
- to the scheme administrator of a registered pension scheme
- to the scheme manager of a QROPS or former QROPS or
- to a member or former member of a QROPS or former QROPS
- In the future, a scheme manager must provide an undertaking to
HMRC to comply with any prescribed benefit crystallisation
information requirements. "Benefit crystallisation information
requirements" includes prescribed information requirements relating
to when an individual first flexibly accesses their pension
- Measures will be introduced so that certain tax charges apply
to savings in non-UK pension schemes where those savings have
benefited from UK tax relief.
- A provision will be introduced so that the tax charges that
apply in connection with the payment of an uncrystallised funds
pension lump sum (UFPLS) can also apply to payments from a relevant
non-UK scheme as if they were payments from a registered pension
- A payment made from a relevant non-UK scheme will be taxed as a
relevant withdrawal where tax is due under the member payment
charges in Schedule 34 but the UK cannot immediately collect the
tax under the terms of a double taxation agreement.
- A provision will be introduced so that where overseas tax has
been paid in respect of the relevant withdrawal, then any UK tax
liability will be reduced by the amount of overseas tax paid.
- The lower money purchase annual allowance of £10,000 will also
potentially apply where an individual is or has been a
currently-relieved member of a currently-relieved non-UK pension
scheme and flexibly accesses pension rights under that non-UK
- Any pension scheme that is or has been a QROPS will be treated
as a registered pension scheme for the purposes of whether the
money purchase annual allowance rules are triggered in respect of
individuals with UK tax relieved savings in that QROPS. This
ensures that where the equivalent of an UFPLS is paid, or payments
are taken from the equivalent of flexi-access drawdown fund from a
QROPS, this counts as a trigger for when then the individual
flexibly accesses their pension rights. This means that the money
purchase annual allowance potentially applies from that date if the
individual continues to contribute to a registered scheme or
- Where an individual first flexibly accesses their pension
during a tax year, when calculating the amount of the pension input
under a money purchase arrangement in a non-UK scheme for the
periods before and after that first access, the same appropriate
fraction for the tax year applies to both calculations.
- An extension will be made to the scope of the existing
regulation making powers in connection with the application of the
annual allowance and lifetime allowance charges to members of
non-UK schemes to provide that the regulations can include
- Currently when working out whether a member has lifetime
allowance available after a relevant BCE has occurred, the value of
any UFPLS paid since the relevant BCE is to be taken into account
for various prescribed purposes. This will be amended so as to
disregard the value of the relevant BCEs when calculating the
member's available lifetime allowance.
- When a relevant non-UK scheme pays an UFPLS after a relevant
BCE has occurred, when working out how much lifetime allowance the
member has available the value of any prior relevant BCE must be
ignored. Also, the referable portion of any earlier PCLS or any
earlier UFPLS paid since the relevant BCE is deducted even if the
lump sum concerned has been paid since the member reached the age
of 75 and the referable portion which would have crystallised by
virtue of the member becoming entitled to a pension since the
relevant BCE is deducted, (even if the member had reached the age
75 before becoming so entitled). The referable portion is the
amount that relates to the funds that have received UK tax relief.
- Amendments also change the start date from which scheme
managers are required to re-notify their QROPS status to delay the
implementation by 12 months. This is because before 6 April 2015
schemes would have to re-notify on the basis of the information in
place at that time. As scheme managers can re-notify HMRC up to six
months before they are due to do so, they provide the information
changed as a result of the amendments in this Bill within 30 days
of 6 April 2015. It would provide no benefit for schemes to notify
HMRC twice in a short space of time
The Draft Overseas Pensions Scheme (Miscellaneous)
Regulations 2015 were published on 17th December
2014 and make further changes to the QROPS regulations.
The notable amendments are:
- An 'overseas pension scheme' must meet certain conditions in
order to be a QOPS. The conditions are amended so that funds that
have received UK tax relief are not required to use 70% of those
funds to provide an income for the individual now that funds of
registered pension schemes can be flexibly accessed. It also
requires schemes established outside the European Economic Area
that are not regulated as a pension scheme by a body in their home
country to be operated by a pension provider that is regulated to
provide pensions who is regulated to provide the scheme in
- Conditions to be a 'recognised overseas pension scheme' which a
scheme must meet in order to be a QROPS, are also amended so that
pension benefits payable under a scheme as far as they relate to
funds that have received UK tax relief, must be payable no earlier
than they would be under the rules that apply to a UK registered
pension scheme. This is intended to discourage people from
transferring to overseas schemes so that they can access their UK
tax-relieved pension savings before they would be able to under a
registered pension scheme.
- The information requirements on a scheme manager are amended.
The Regulations sets out categories of information that a scheme
manager is required to provide and removes the need, in the
majority of cases, for the scheme manager, when reporting
information, to consider whether the individual is (or has been in
the last five full tax years) UK resident. It also changes the
timing of the reporting of information so that a scheme manager of
a QROPS has to report a payment within 91 days of the payment being
- A further requirement is introduced for an individual making a
transfer of pension savings from a registered pension scheme to a
QROPS to supply information to the registered pension scheme when
an individual flexibly accesses their pension rights. There is a
new requirement for registered pension schemes to send that
information about the individual member, and some extra
information, to HMRC. The timing of reporting of information has
also changed for a UK scheme. It will have to report a transfer
within 91 days of it being made.
- For a transfer to be made free of UK tax the scheme receiving
the transfer must meet certain requirements. One of the conditions
that a scheme can meet is that there is a double taxation agreement
between the UK and the country in which the scheme is established
which contains provisions about the exchange of information between
the parties. This provision has now been extended to include tax
information exchange agreements made under section 173 of Finance
Act 2006. This will cover agreements that were not in existence
when S.I. 2006/206 was first made.
- These Regulations are draft and subject to a 4 week technical
Pensions Ombudsman rules in three more pension
The Pensions Ombudsman has recently published a further three
determinations connected with "pension liberation" or "pension
scams". They follow the publication on 16 December 2014 of the case
of "Mr X" who had transferred almost £370,000 to a scheme investing
in storage units and was unable to recover the money. That case
showed just how risky these schemes can be.
In the cases published the complainants had all wanted to
transfer away from their existing personal pension plan into a new
plan which were supposed to be an occupational pension scheme
registered with HMRC. In each case the three schemes to which the
transfers were to be made to, were different. In each case, had
declined to make the transfer.
These determinations should not be seen as:
- helping "pension schemes" that may offer dubious freedoms,
- serving as authority for genuine pension schemes to bar
transfers on the grounds of mere suspicion or undisclosed
They do, however, provide some encouragement to schemes asked to
pay a transfer value that have followed the regulatory guidance,
obtained as much evidence as they can and made a reasoned decision
about whether there is a right to transfer or not.
The Ombudsman's Approach
The three cases are similar and, in view of the public interest,
the determinations all set out the regulatory, legislative and tax
background in detail. They share some analysis and observations in
The Ombudsman noted that, following case law, when determining
legal rights he has to reach a decision in effect equivalent to the
decision a court would reach in the same circumstances. He
considered whether the scheme members had a legal right to the
transfer they had asked for, either in statute or under the
transferring scheme's own provisions.
The Ombudsman found that there was no statutory right to a
transfer in any of the cases. But in none of them had the provider
carried out the analysis to establish that.
As a secondary matter the Ombudsman considered whether the
providers' approaches had been consistent with their regulatory
obligations, noting in two of the cases that the FCA regulated
providers went beyond the Pensions Regulator's guidance.
However, in his concluding remarks the Ombudsman acknowledged
that schemes and pension providers "find themselves in a highly
unenviable position". He said that suspicions about pension
liberation may justify delay for the asking of relevant questions.
Strictly, though, a transfer could only be withheld beyond the
statutory period for payment if there was no right to it. If, after
enquiry, the trustees or providers concluded there was no right
they should be able to justify that.
The three cases concerned are listed below, with a brief summary
of the Ombudsman decision
Mrs Kenyon (Zurich)
The complaint is not upheld. Mrs Kenyon does not have a right to
transfer, primarily because the Axiom UPT Scheme is not an
occupational pension scheme as defined in the relevant
Mrs Jerrard (AVIVA)
The complaint is not upheld. Mrs Jerrard does not have a right
to transfer, primarily because the SCCL Scheme is not an
occupational pension scheme as defined in the relevant
Mr Stobie (Standard Life)
Mr Stobie did not have a statutory right to transfer, primarily
because the transfer would not have secured "transfer credits"
which, as defined in the relevant legislation, required him to be
an earner in relation to the Scheme, which he was not. However,
under the rules of the SIPP Standard Life had discretion whether to
allow a transfer nevertheless, which they have not considered. The
complaint is upheld to the extent that they should now do so.
We will now briefly consider the cases below:
Mrs Kenyon (Zurich) and Mrs Jerrard (AVIVA)
In the cases of Mrs Kenyon and Mrs Jerrard the Ombudsman found
that there was no statutory right to transfer. The main reason was
that the intended receiving schemes were not within the definition
of "occupational pension scheme" in the Pension Schemes Act 1993.
The schemes did not identify a clear class or "description" of
employments of the people that they were to provide benefits
Mr Stobie (Standard Life)
In Mr Stobie's case, although the intended receiving scheme was
an occupational pension scheme within the statutory definition, Mr
Stobie was not an "earner" in relation to it so, as in the other
two cases, the Ombudsman found he had no statutory right to
transfer. However, under the rules of the Standard Life SIPP,
Standard Life had discretion to pay a transfer value even where
there was no statutory right. The Ombudsman found that Standard
Life had not exercised discretion properly and directed them to
But the Ombudsman added a "serious note of caution" suggesting
that Mr Stobie should take professional advice from a properly
authorised person before taking a step that was at the least high
risk; at the worst he was about to be financially
The three cases reflect the environment in relation to tax
registration and regulatory guidance as it was when the
applications to transfer were made. There have been changes since,
particularly in registration requirements.
However, the three cases, alongside that of "Mr X" published in
December, illustrate the difficulties for schemes and providers in
dealing with possible pension liberation. Mr X took a transfer and
may have lost all his money; Mrs Kenyon, Mrs Jerrard and Mr Stobie
wished to make similar transfers and perhaps would have lost theirs
too (though the Pensions Ombudsman Service had no evidence of
that). But if the transferors had had a statutory right that they
were determined to enforce, even in the face of severe warnings,
then, after the providers had made such enquiries as thought
necessary to establish whether the right existed, the providers
could not have further resisted payment.
Statutory Money Purchase illustrations
Just over a year ago - when Mr Osborne's pension
revolution was a mere twinkle in the Chancellor's eye - the
Financial Reporting Council (FRC) signalled that it intended to
undertake a comprehensive review of TM1, the document which sets
out the basis for statutory money purchase illustrations (SMPIs).
An exposure draft version 4.0 was issued and then the pension world
began to change.
The results of the consultation on the draft
have now emerged as version 4.1 of TM1. Perhaps surprisingly the
FRC says that it does "not propose to make any significant changes
to the existing method or assumptions" in version 3.0. However, there are three
amendments which are worthy of note:
Future contributions under automatic
enrolment Although TM1 requires future contributions
to be taken into account, it does not state a basis for their
projection. This has become an issue with the phasing in of
auto-enrolment minimum contribution increases. The new TM1 will
allow providers to "use their judgement to choose reasonable
assumptions", which could mean ignoring the increases provided this
is made clear in the statement.
terms The current TM1 does not permit providers to
take account of annuity guarantees which produce a higher amount of
initial pension than the TM1 assumptions. The new TM1 gives
providers discretion to take account of guaranteed annuity terms,
should they deem them appropriate.
Same-sex marriage legislation has been in force in England and
Wales since 13 March 2014, with the corresponding Scottish
legislation effective from 16 December 2014. The current TM1 allows
providers to use their judgement in determining the age difference
to be assumed in same-sex marriages, but the new TM1 specifies that
for same-sex marriages both spouses are the same age (mirroring the
provision which already applies to civil partners).
The new TM1 comes into force for illustrations
issued on or after 6 April 2015, although earlier use is
In the world of flexi-access drawdown, the next
TM1 may need to revisit the idea of projecting pension