Personal Finance Society news update from 16 March to 29 March
2016 on taxation, retirement planning, and investments.
Taxation and Trusts
The Law Commission is to consider changes to the law
on wills and testamentary capacity
The England and Wales Law Commission is considering plans to reform the will-making
regime, including the rules for the validity of wills and
testamentary capacity. A consultation paper is expected in
2017 and a report and draft legislation in 2018.
The primary wills legislation, the Wills Act 1837, dates from the
Victorian era. The law governing testamentary capacity, the mental
capacity to make a will, derives from a case from 1870. It is
perhaps not surprising that this area of the law is ripe for
The Law Commission believes that the current law discourages some
people from making wills, that it is out of step with social and
medical developments, and that it may not work in such a way as to
give best effect to a person's intentions on death.
The law has also been criticised as being difficult to understand
and apply - and sometimes being unworkable in practice. The
operation of the law, in cases where mental capacity is in
question, is a particular and growing problem, since conditions
that affect capacity are becoming more common as people live
The Law Commission will focus on four areas of potential
- Testamentary capacity;
- Formalities of a valid will;
- Rectification of wills; and
- Mutual wills.
The Law Commission will also consider how the law can be changed
to encourage will-making in the 21st century and updated
to reflect social and technological developments. For example, the
Law Commission will question whether it is time to digitalize the
will making process (as has been developed in conveyancing).
It is estimated that over 40% of adults in the UK do not have a
will. Those who do may find that their wills may be found to be
invalid after their death. Further, the current law has not been
updated to reflect trends in modern society, particularly
co-habitation between unmarried couples and second marriages.
One of the stated aims of the Law Commission is to reduce the
likelihood of wills being challenged after death, and the incidence
of litigation. There has been, in recent years, a visible increase
in such litigation which is, needless to say, expensive as well as
stressful if not traumatic for the bereaved.
Income tax and CGT changes from 6 April 2016 - The
implications for trusts
Trustees need to prepare for changes to the tax treatment of
dividends and interest and for the changes to the CGT rates coming
into effect from 6 April 2016. Here we consider some of the
income tax and capital gains tax (CGT) changes taking effect from 6
April and how they will affect the trustees of different types of
trust. We will also look at any planning opportunities the changes
Personal savings allowance
From April 2016 a personal savings allowance (PSA) of £1,000 for
basic rate taxpayers and £500 for higher rate taxpayers will be
introduced in relation to savings income.
Trustees are not entitled to the PSA. However, the fact that
from 6 April 2016 banks and building societies will stop deducting
tax on interest payments is of significance to trustees.
Gross payments of interest only will be made from 6 April on
accounts with banks and building societies. However, it was
announced in the 2016 Budget that the government will change the
tax rules so that interest from OEICs, authorised unit trusts,
investment trusts and peer-to-peer loans may be paid without
deduction of income tax from April 2017.
Changes to the tax treatment of dividends
From 6 April 2016, the 10% dividend tax credit will be abolished
and a tax-free dividend allowance of £5,000 a year will apply to
individuals. In addition, new tax rates above the allowance will
apply and will be 7.5% for basic rate taxpayers, 32.5% for higher
rate taxpayers and 38.1% for additional rate taxpayers. The 38.1 %
rate also applies to trusts, i.e. it is the new trust dividend
rate. Where dividend income is received within the standard rate
band (SRB) the trustee rate equals the basic dividend rate i.e.
7.5%. The £5,000 allowance does not apply to trustees or personal
With the above in mind the following are the implications for
The income tax rates paid by trustees on interest remains the
same, i.e. 20% within the standard rate band and 45% on the rest.
Where income is received without the tax credit, tax will have to
be paid by the trustees. For trustees who have hitherto received
only income within the SRB and with a tax credit, this will mean
they will have to complete the Trust and Estate Tax Return and pay
the appropriate tax, 20% on interest and property income and 7.5%
on dividends. Remember that interest distributions from collectives
will continue to be paid with a basic rate tax credit at least
until April 2017.
The above applies to discretionary trusts and any other trust
where the beneficiary has no vested right to income (interest in
possession or IIP). If the trustees make a distribution of trust
income, the beneficiary is assessed on "trust income" at their
marginal rate(s) with an appropriate tax credit for the tax paid by
the trustees. The PSA and dividend allowance will not then be
available to offset against such trust income.
Interest in possession trusts
If the beneficiary has a vested right to income (IIP) the income
retains its nature and so the beneficiary is taxed on interest or
dividends as appropriate and the PSA and dividend allowance will be
available to the beneficiary in the usual way.
Of course, if the trustees of an IIP trust actually receive
gross interest or dividends (with no tax credit after 5 April) they
will have a basic rate liability at 20% on interest and at 7.5% on
dividends, but the beneficiary will receive an equivalent tax
credit. So ideally any gross interest and any dividend income
should be paid directly to the beneficiary. This way the trustees
will not have to submit Trust and Estate Tax Returns.
Capital gains tax (CGT)
Budget 2016 announced a reduction in the CGT rates and this
applies to trustees as well as individuals.
When trustees pay CGT the rate is currently 28%. From 6 April
2016 this rate will reduce to 20% except for carried interest and
for chargeable gains on residential property (i.e. property other
than that occupied by a beneficiary when the principal private
residence relief may be available). The 28% rate will also remain
for ATED-related chargeable gains.
The annual CGT exemption for trusts will normally be £5,550 in
2016/17. This will be diluted according to the number of trusts
created by the same settlor but will never be less than £1,110.
These changes will take effect for disposals made on or after 6
Trustees of discretionary trusts who wish to avoid paying income
tax on their own account, especially where up to now they have not
had to submit returns because the trust income was covered by the
SRB, could consider appointing an interest in possession to a
beneficiary who is a basic rate or non-taxpayer subject, of course,
to taking all the circumstances into account. Alternatively, they
could consider reinvestment into non-income producing assets,
assuming no actual income is needed.
Trustees of IIP trusts should ensure, wherever possible, that
any trust income is mandated directly to the beneficiary entitled
to the IIP if they wish to avoid submitting their own returns.
Trustees who are about to dispose of a trust asset which will
give rise to CGT at the current higher rate of 28% should consider
waiting until 6 April 2016 to benefit from the lower 20% rate. Of
course, if the trustees have yet to use their annual CGT exemption
for the current tax year they should consider using it before 6
What do the Stamp Duty Land Tax changes mean for
trustees and beneficiaries?
The new higher rates of Stamp Duty Land Tax have been widely
publicised but what do the changes mean for trustees and
beneficiaries? As usual, the devil is in the detail so, here, we
take a closer look at the draft legislation published after the
Budget and highlight some of the traps.
At Autumn Statement 2015, the Chancellor
announced that as part of his 'five point plan' on housing, new
higher rates of Stamp Duty Land Tax (SDLT) would apply to purchases
of additional residential property completed on or after 6 April
2016. Following a period of consultation, draft legislation was
published amongst the March 2016 Budget documents. In
addition, a summary of responses to the consultation and detailed
guidance on how the new rules will operate in practice was also
Where residential property purchases are made by individuals, it
will usually be fairly easy to determine whether or not the new
higher rates should apply. In broad terms, if the consideration
paid for the property is greater than £40,000 and at the end of the
day of completion the individual owns two or more residential
properties then (unless the new property has replaced the
individual's main residence), the higher rates will apply.
But what is the position for individuals who unexpectedly
inherit property when they are in the process of buying a main
residence? Or for those who happen to be beneficiaries of a trust
that owns property? These situations are far from infrequent and
warrant a closer look at the draft legislation.
SDLT is charged on the consideration given for the property i.e.
the price paid for the property. Where property is received as a
gift - made during lifetime or on death - there will not usually be
any consideration and the recipient beneficiary will not therefore
be liable to SDLT. However, a beneficiary who has received property
by way of gift will nonetheless own that property once the gift is
completed and this may therefore affect the amount of SDLT that is
paid by the beneficiary on any subsequent (additional) property
The new rules provide some relief for beneficiaries who inherit
property under the terms of a will or an intestacy in certain
limited situations. Broadly, if a purchaser of residential property
has inherited other residential property less than three years
before they make the purchase, then the inherited property will be
ignored for the purposes of determining the number of residential
property interests owned by the purchaser at the end of the day of
- The beneficiary became a joint owner of the interest by
- The combined interest of the beneficiary and any spouse or
civil partner has at no point during the three year period ending
with the date of the property purchase exceeded one half of the
total value of the property.
What this means of course is that in all other cases (including
where a beneficiary has inherited a residential property in its
entirety), the inherited property will be taken into account when
deciding what rate of SDLT should be charged on the later purchase.
With no scope to claim back the difference between the higher and
standard rates if the inheritance is sold after the new property
purchase has been made (assuming, of course, it was not the
beneficiary's main residence), those who find themselves in this
situation will feel an inevitable pressure to make a rushed
decision about the inherited property.
There is no equivalent relief for beneficiaries who receive
property by way of lifetime gift and parents who are considering
making gifts of property or interests in property to children as
part of an inheritance tax (IHT) planning or asset protection
strategy, should therefore consider the potential impact on the
beneficiary's future plans before proceeding. The result could be
particularly harsh for an adult beneficiary who has yet to buy
their first home - if they own a share of their parents' residence
in name only with the parent(s) remaining in occupation!
Adult beneficiaries of trusts that hold residential property
could also be affected by the new rules if they are either
absolutely entitled to the trust property or entitled to occupy the
property for life or receive income from the rental of the property
(i.e. an interest in possession). Such beneficiaries will be
treated as already owning a residential property interest for the
purposes of determining the rate of SDLT that will apply to any new
purchases in their own name. Note that the interest in possession
does not need to be a qualifying interest in possession for IHT
purposes (such as an immediate-post death interest) for the SDLT
rules to apply.
The new higher rates can also apply where trustees buy
residential property and, for trustees of discretionary trusts, the
position is particularly unfavourable as the new higher rates of
SDLT 'for additional properties' will apply on the purchase
regardless of whether the trust owns other property or not! The
rate to be paid by trustees of bare or interest in possession
trusts will depend largely on the purpose of the purchase and the
position of the beneficiary. So, for example, if the new property
is being bought to replace an existing trust property that is
occupied by the beneficiary as their main residence, the new rates
will not apply. If, however, the beneficiary owns their own home
and the trust property is simply providing the beneficiary with an
income, the higher SDLT rates would apply to the purchase of a
replacement investment property by the trustees.
It is clear from a detailed consideration of the draft
legislation, that the new SDLT rules for additional properties are
more wide-reaching than they may have initially appeared and could
have an impact on a wide range of client scenarios from trustee
investments to estate planning and asset protection. First-time
buyers and purchasers of residential property who have sold their
main residence more than three years earlier (perhaps clients who
have been living and/or working abroad) will also need to be
mindful of the impact of the new rules if they have recently
inherited property or are receiving rental income from a trust.
Retail Prices Index - ONS basket
Every year the Office for National Statistics
(ONS) reviews and updates the basket of goods and services which it
uses to calculate the various inflation indices. It has just
published its 2016 revisions, which will take effect from the
February inflation numbers, due to be published on 22 March.
The basket consists of about 700 items and on
this occasion 14 have been removed and 15 new ones added, with a
further 13 "modified". The adjustments are a reminder that
measuring inflation is no simple matter. The tweaks come after
amendments to the various sector weightings that took effect from
January for CPI and CPIH (CPI+ housing costs) and February for RPI.
What we spend our money on and how we allocate our expenditure are
The headlines additions include:
- Coffee pods and pouches of microwave rice have been added to
represent types of prepared food and drink not already covered.
Multipacks of meat-based snacks have been introduced to represent
the market for buffet-type food.
- Computer game downloads have been added, reflecting evolving
trends towards online services: their inclusion splits the weight
of existing computer games items.
- Cream liqueur has been added "to help interpretation of a class
where there is a high degree of price volatility due to discounts"
(think Bailey's and Christmas). In the same sentence
the ONS also says nail varnish has been added to 'widen the list of
- Lemons have been introduced 'to boost representation of citrus
The rejects are an interesting comment on how
life is evolving, but also reflect a rationalisation process by the
ONS. They include:
- Gloss paint and non-white emulsion have been replaced by a
combined paint item 'as the class is over-covered' in the
unwittingly punning words of the ONS.
- On a similar basis, the restaurant main course of meat or fish
and the separate vegetarian main course have been combined in a
restaurant main course item.
- Organic apples and organic carrots have been cut (sic), but the
non-organic apple and carrot items have been amended so that they
will cover both organic and non-organic produce.
- Prescription lens and power points have gone because the ONS
believes that price changes for these items are adequately
represented by others that remain in the baskets.
- CD Roms and rewritable DVDs have been expunged, thanks to
streaming and downloading largely taking their place. When did you
last buy either?
- Nightclub entry fees have also been removed, the ONS arguing
that this was 'due to collection difficulties [!] and reduced
expenditure as the number of nightclubs is declining'.
- A 'cooked sliced turkey item' has been replaced by cooked
sliced poultry because turkey was increasingly difficult to find in
shops. This is a reminder that to produce a price index, a
representative range of prices for each item is
The changes grabbed a few headlines, notably on the computer
disc front. A more difficult aspect which all inflation index
setters have to deal with is how to cope with increased performance
of products and services. Think of what you expect from today's 4K
internet-linked television against what as on offer a decade
February inflation numbers
February saw no change in the rate of inflation.
Annual inflation on the CPI measure was unchanged in February,
with the rate staying at +0.3%, the highest for a year. Market
expectations were that the February inflation
numbers would register a 0.1% rise.
The CPI showed prices up 0.2% over the month, whereas between
January and February 2015 they rose 0.3% - the year-on-year figure
did not change due to rounding. The CPI/RPI gap remained unaltered
this month at 1%, with the RPI also staying flat on an annual basis
(at 1.3%). Over the month, the RPI rose by 0.5%.
The stasis in the CPI annual rate was due to one
main "upward contribution", offset by one main "downward
contribution", according to the ONS:
Food and non-alcoholic beverages:Overall prices rose by 0.1%
between January and February 2016, compared with a fall of 0.2%
between the same two months a year ago. The overall upward
contribution came from a variety of product groups, most notably
vegetables and milk, cheese and eggs. Year-on-year deflation in
this category is now -2.3%.
Transport:Prices overall were unchanged between January and
February this year compared with a rise of 0.4% between the same
two months a year ago. The largest downward effects came from road
passenger transport and bicycles, where prices fell this year but
rose a year ago, and second-hand cars, where prices fell by more
than a year ago. Year-on-year deflation in this category is now
Core CPI inflation (CPI excluding energy, food,
alcohol and tobacco) was also unchanged at an annual 1.2%. There
are now only three out of twelve index components in negative
annual territory, one less than last month. Goods inflation
continues to be solidly negative (at -1.6%), while services
inflation is distinctly positive (+2.4%).
There is nothing in these numbers to worry the Bank of England.
It looks increasingly likely that this month's seventh anniversary
of 0.5% base rates will run onto to an eighth in March 2017.
The Lifetime ISA
The announcement in the recent Budget regarding
the introduction of a Lifetime ISA (LISA) from April 2017 has given
us plenty to think about with regard to the future of savings
We first came across the LISA back in 2014, when Michael
Johnson, a research fellow at the Centre for Policy Studies
think-tank, said that the government should transform individual
savings accounts into lifetime savings accounts which would
incorporate both ISA-like and pension-like features.
The LISA will enable those who are under the age of 40 to save
up to £4,000 in each tax year with the added benefit of the
government providing a 25% bonus on the contributions paid in a tax
year at the end of that tax year. This means that where the maximum
saving of £4,000 has been made the government bonus will equate to
£1,000 bringing the amount invested up to £5,000 in the first and
subsequent years. There will be no monthly cap on subscription
Savers will be able to make LISA contributions and receive the
government bonus from the age of 18 up to the age of 50. So,
effectively, someone who opens an account aged 18 will be able to
secure lifetime savings of up to £160,000 (i.e. £128,000 saved by
them and £32,000 as government bonuses). At age 50, permitted
contributions can continue but there be no government bonus
Opening a LISA will be almost identical to opening a standard
ISA - so an LISA manager will apply their normal account opening
process which would generally include asking for the appropriate
identity documents which prove the saver's date of birth, National
Insurance number, proof of address etc…It will also be possible for
savers to open more than one LISA in their lifetime, but they will
only be able to pay into one LISA in a tax year - thus the rules
appear to align with the standard ISA.
The aim of the LISA appears to be two-fold - it is intended that
savers will either use the funds to buy a residential property as a
first-time buyer or to provide an alternative or an additional
Tax-free funds, including the government bonus, can therefore be
used to buy a first home worth up to £450,000 at any time from 12
months after opening the account. If the house is being bought with
someone else, both purchasers can use a LISA and each benefit from
the government bonus. The rules are based on the rules applicable
for the Help to Buy ISA, so any withdrawal must be for a deposit on
a first property - so effectively the withdrawal together with the
government bonus will be paid directly to the conveyancer.
In other cases, while money can be withdrawn at any time, if it
is withdrawn before the investor turns 60, the government bonus
(together with any interest and growth on the bonus) will be lost
and a 5% charge will be payable. From age 60, full or partial
withdrawals can be made and will at that time be paid free of tax.
If funds remain invested, any interest and investment growth will
be tax free. There are exceptional circumstances in which it will
be possible to make withdrawals earlier, for example, terminal
ill-health - the definition of which will align with that used for
For inheritance tax (IHT) purposes, the LISA will have the same
treatment as other ISAs. Therefore, on the saver's death, the funds
will form part of the deceased's estate for IHT purposes. If,
however, the LISA is owned by somebody with a surviving
spouse/civil partner, that spouse/civil partner will also inherit
the LISA tax advantages and will be able to invest as much into
their own LISA as the value of the deceased spouse's/civil
partner's on top of their usual allowance.
Finally, it is important to note that any contributions to a
LISA will count towards the overall £20,000 ISA contribution limit
from next April.
It will be interesting to see how many people will actually take
advantage of the LISA as an alternative to effecting a registered
pension plan for retirement planning. Of course, if the desire is
to get onto the property ladder for the first time, the LISA will
be a more popular choice.
For "ordinary retirement savers", while they will be able to
make partial withdrawals if those withdrawals occur before age 60
they come with a sting in tail as the government bonus will be lost
- including any interest or growth on that bonus and a 5% charge
How attractive a LISA will be will therefore depend on the
circumstances and requirements of the investor. It will
clearly be attractive for the would-be first-time buyer who is 40
It will also be attractive for the person under 40 who wishes to
save until age 60 - but in the knowledge that if all else fails
they can get their money back before then at any age - albeit
suffering the penalty of the loss of the government bonus, growth
thereon and a 5% charge.
For the "retirement saver", who is under age 40 and a higher
rate taxpayer, a pension plan will still appeal - at least under
the current rules. This is effectively the case as access at age 55
is now available without the requirement to purchase an annuity
but, of course, 75% of the fund will be taxable - which is not the
case with the LISA at age 60.
The Lifetime ISA versus the Help To Buy
The previous article provides an overview of the Lifetime ISA
and its features.
Here we provide a quick summary of the Lifetime ISA compared to
the Help to Buy ISA.
Help to Buy Isa
From April 2017 onwards
From 1 December 2015 to 30 November 2019
Savers have to be under age 40 at April 2017 - so it is possible
to open an account if between the age of 18-39 and UK resident
Available to first-time buyers aged 16 or over who are UK
Aim of the product
To help under 40s save for a first home or retirement
To help first-time buyers save a deposit for their first
Type of ISA
Cash/stocks and shares
Maximum of £4,000 a year - no monthly cap - until the saver
turns 50. Max over a lifetime £128k (i.e from age 18-50).
£200 a month, plus a further £1,000 on account opening up to a
maximum limit of £12,000
Max government bonus
£1,000 a year from age 18 until the saver turns age 50 (i.e a
cap at £32k)
At the end of the tax year but can be paid in-year when a home
purchase is made
When the saver purchases a home
Max time account can be open and contributed to
Savers can open an account between the ages of 18 and 39 but the
bonus will only be paid on contributions made until they turn 50 -
a maximum of 32 years' contributions. The government will consult
on allowing further contributions past the age of 50 that would not
qualify for a government bonus
Until the account balance reaches £12,000 (including interest).
This would take a minimum of four years and seven months of
contributions, excluding interest. Accounts can be opened until 30
November 2019 and contributed to until 2029
Maximum property value your savings can be used to buy
£450,000 - restricted to UK residential property
£250,000 rising to £450,000 in London
Transfers in from previous years' ISAs?
No - except for the 2017/18 tax year only, a Help to Buy ISA
(including the government bonus) can be transferred into the
Full withdrawal conditions
There will be an initial minimum holding period of 12 months
from account opening before withdrawals, that include the
government bonus, can be made for a home purchase or retirement. If
used for a home purchase, withdrawal must be paid to conveyancer.
Where people are diagnosed with terminal ill health, they will be
able to withdraw all of the funds
You can withdraw money at any time but you can't replace it
straight away. For example, if you deposit £200 and then withdraw
£50 in the same month, you will have to wait until the next month
to make another deposit. No fee for withdrawal but loss of
Partial withdrawal conditions
Savers can make partial withdrawals but will lose the government
bonus (including any interest or growth on that bonus) and a 5%
charge will apply
No withdrawal fee but loss of bonus
Government response to the consultation on regulations
to simplify automatic enrolment processes
On 10 March 2016, the Department of Work and Pensions, published the government's response to their
earlier is consultation on proposed technical changes to auto
enrolment that are designed to simplify the employer burden,
especially now small and micro employers are reaching their staging
There were 25 formal written responses made to the consultation
and those were broadly supportive of the aims of the regulations
with respondents agreeing that they would reduce burdens on
The resultant Occupational and Personal Pension Schemes
(Automatic Enrolment) (Miscellaneous Amendments) Regulations (SI 2016/311) have been laid before parliament
on 10 March and come into force on 6 April 2016.
The main changes following on from the consultation outcome that
will be of interest to financial planners include:
- Exceptions to the employer duty:
- Company Directors
- Limited Liability Partnerships (LLPs)
- Tax Protected Status
- Winding Up Lump Sums (WULSs)
- Compliance easements:
- Early Automatic Enrolment - bringing your staging date
- Early staging date
- A transitional easement for certain formerly contracted-out
We will consider these in turn.
Exceptions to the employer duty
Pensions Act 2014 gave powers to the Secretary of State to
prescribe exceptions to the employer duties to automatically enrol
individuals in certain instances. Three exceptions had been
introduced with effect from 1 April 2015 for individuals:
- with tax protected status for existing pension savings (i.e.
enhanced or fixed protection);
- who have given or been given notice of termination of
- who cancel membership of a qualifying scheme or opt out before
Two more groups of individuals are now being added to the
exceptions from 1 April 2016:
- company directors; and
- genuine partners in Limited Liability Partnerships (LLPs).
Already directors who didn't have a contract of employment were
outside the scope of auto enrolment. However, from 1 April 2016, it
will no longer be an employer's duty to automatically enrol or
re-enrol a jobholder who is a director of the company by which that
jobholder is employed. It will instead be discretionary and the
individual will still have the same rights as any jobholder to
enrol and benefit from the normal contributions.
Genuine Partners in Limited Liability
Following a recent Supreme Court decision in Clyde & Co LLP
v Bates van Winklehof that self-employed LLP members can be
"workers" as defined in Employment Law and so could also be subject
to the automatic enrolment duties an exception is being created
that will apply to "genuine" partners in a LLP.
The exemption is based upon HMRC's Salaried Members Rules as a
basis for determining whether a member of an LLP is a genuine
partner as opposed to an employee. The HMRC Guidance and technical
Note can be found here. The Salaried Member provisions are
intended to apply to those members who are more like employees than
partners in a traditional partnership, in order to address the
existing inconsistency in the ways that LLPs and general
partnerships are treated for tax purposes.
The new exemption is for those members of a LLP who are not
treated for income tax purposes as being employed by the
partnership, i.e. genuine LLP members.
Tax Protected Status
In short, this extends the existing exceptions, from 6 April
2016 that apply to individuals with enhanced protection, fixed
protection and fixed protection 2014, to those with fixed
Advisers need to be aware, that whilst provisional elections for
FP16 can be made as soon as a client wishes after 6 April 2016, the
full election can't be made until towards the end of July. Also
there is of course no time limit for making an election.
Some clients may decide to suspend contributions in the
short-term with a view to reviewing whether to elect for FP16 or
not in the next couple of years. This exception will of course not
apply to them until they have elected for FP16. They will still
have to reply on the statutory 30-day opt-out period. This will
apply not only to individuals who haven't reached their employer
staging date, but also those falling under the three-year
Compliance easements; reducing complexity for
As these will have only limited interest for Financial Planners,
they will only be briefly summarised. The new regulations
make the following changes:
- The requirements for employers, who wish to bring forward their
staging date, are simplified so that where the employer has no
eligible jobholders to automatically enrol, they no longer need to
seek the agreement of a pension scheme to bring forward their
- The measures remove the requirement for employers to give the
Pensions Regulator one month's notice of their intention to bring
forward their staging date so that notice can be given at any point
up to and including their new early automatic enrolment date;
- Employers, without anyone to enrol, can now bring forward their
staging date to any date, between today and their original staging
date, and are no longer restricted to a 1st of the month date;
- The measures align the timeframes for re-declaration,
regardless of whether an employer has eligible jobholders.
Employers without anyone to re-enrol are now treated in the same
way as employers with eligible jobholders, so that they need only
provide information to the Regulator within 5 months of the third
anniversary of their original staging date; and then, broadly, at 3
year intervals from their last re-enrolment date.
A transitional easement for certain formerly
contracted-out salary-related schemes
Employers using defined benefits schemes for their automatic
enrolment duties have been able to demonstrate scheme quality by
the existence of a valid contracting-out certificate. However, from
6 April 2016, employers offering defined benefits schemes will no
longer be able to contract their employees out. To ensure that
their schemes qualify for automatic enrolment, employers would then
have to use the Test Scheme Standard or the alternative quality
requirements for defined benefits schemes.
The Government expected that most using the alternative quality
requirements will apply a test based on the cost of the future
accrual of benefits provided by the employer for the active scheme
members. For a transitional period only, the employers of
schemes that satisfy the contracting out conditions on 5 April
2016, and who have not changed the benefits in their schemes, will
be able to apply the cost of accruals test at scheme level.
This easement will be available until the earlier of two
- either the date that the actuary signs the first report after 5
April 2016 that breaks the cost of accruals down to benefit scale
The easement will obviate the need for employers to commission
or undertake nugatory work to demonstrate that their scheme
qualifies to be used for automatic enrolment.
Financial Assistance Scheme to close to new schemes from
The Pension Protection Fund has announced that the Financial
Assistance Scheme will close to Notification and Qualification of
new schemes from 1 September 2016.
Trustees, advisors, former trustees and/or former advisors of
any pension scheme they believe may be a qualifying scheme not yet
notified to FAS should do so as soon as possible. Members currently
receiving, or with a deferred entitlement to receive, assistance
payments from the Financial Assistance Scheme are not affected by
FAS was established to help people who have lost out on their
- they were a member of an under-funded defined benefit scheme
that started to wind-up between 1 January 1997 and 5 April 2005,
- their scheme began to wind-up (ended) and did not have enough
money to pay members' benefits, and
- the employer could not pay the shortfall because of insolvency,
has ceased to exist or has not met its commitment to pay its debt
to the pension scheme, or
- the scheme started to wind up after 5 April 2005 but was
ineligible for help from the Pension Protection Fund due to the
employer becoming insolvent before this date.