Pensions: Pension Schemes Newsletter; Pension flexibility statistics; GMP Newsletter and more

 

• Pension Schemes Newsletter 122 – July 2020
• HMRC pension flexibility statistics
• ABI - Pension savers press pause in lockdown
• Work and Pension Committee to review pension freedoms and protecting pension savers
• Guaranteed Minimum Pension (GMP) equalisation newsletter - July 2020
• PLSA have issued call for evidence on plans to improve support for those navigating pension freedoms

 

Pension Schemes Newsletter 122 – July 2020
(AF3, FA2, JO5, RO4, RO8)

HMRC Pension Schemes Newsletter 122 covers the following:

• relief at source - Call for evidence: Pensions Tax Relief Administration

• relief at source - Reporting excess relief

• relief at source - Annual return of information for the tax year 2019 to 2020

• collective money purchase benefits (CMPs)

• managing Pension Schemes service – accounting for tax return

• Guaranteed Minimum Pension (GMP) Equalisation Newsletter – July 2020

• pension flexibility statistics

• annual allowance - Pension savings statements for tax year 2019 to 2020

• annual allowance - Declaring the annual allowance charge on the Self-Assessment tax return

• qualifying Recognised Overseas Pension Schemes (QROPS) transfer statistics

Issues of particular interest

Call for evidence: Pension Tax Relief Administration

The government has issued a call for evidence on proposals to address the issue of tax relief for low earners.  Currently there are different tax outcomes depending on which type of scheme is used, ie relief at source or net pay.  

Pension flexibility Statistics

HMRC provide their latest update on the number of tax repayment claim forms processed for pension flexibility payments.

From 1 April 2020 to 30 June 2020 they processed:

P55                  5188    forms

P53Z                1,709   forms

P50Z                752      forms

The total value reclaimed in the quarter was £27,227,935

Annual Allowance

A reminder that pension schemes must issue pension savings statements for tax year 2019/2020 by 6 October 2020.  Statements are issued to members who have made savings of more than the annual allowance to the pension scheme. 

A reminder that those that have exceeded their annual allowance for 2019/20 and do not have sufficient carry forward available from previous years, need to declare the excess in their self-assessment tax returns by 31 January 2021.  This needs to be done even where the member is using scheme pays.

HMRC pension flexibility statistics

(AF3, FA2, JO5, RO4, RO8) 

The latest Official Statistics on flexible pension payments show a 17% decrease in the amount withdrawn from pensions flexibly, decreasing from £2.8 billion in Q1 2019 to £2.3 billion in Q2 2020.

The number of individuals making withdrawals saw a very small increase of 1% over the year, up to 340,000 compared to 336,000 in the same quarter of 2019.

The average withdrawal in Q2 2020 fell 18% to £6,700, down from £8,200 in Q2 2019. The statistics have shown average withdrawal amounts consistently decreasing since reporting became mandatory in Q2 2016, usually with peaks in Q2 of every year.  However, this year there has been no Q2 peak, probably due to the impact of COVID-19.

ABI - Pension savers press pause in lockdown
(AF3, FA2, JO5, RO4, RO8) 

The Association of British Insurers (ABI) has reviewed the latest industry data and it has reported that there was a significant decrease in pension withdrawals during lockdown. The data indicates that pension savers resisted any impulse to cash in their savings during the period of financial uncertainty and stock market volatility.

They highlight that comparisons between the April 2019 and April 2020 data show:

• People choosing to access their pension as a flexible income fell by 42.2%.
• The number of people taking just their tax free cash lump sums fell by 53.1%.
• The number of people withdrawing their entire pension in one lump sum fell by 30.2%.
• The number of people buying a guaranteed income for life fell by 56.3%.

The ABI expect withdrawals rates to now increase as lockdown is eased due to pent up demand. More people may also need to access their funds as the furlough scheme winds down. They urge people to seek financial advice before making any withdrawals from their pension funds.

Work and Pension Committee to review pension freedoms and protecting pension savers
(AF3, FA2, JO5, RO4, RO8)

The Work and Pensions Committee is to undertake a three-part inquiry into the impact of pension freedoms and the protection of pension savers. The first of these inquiries will focus on pension scams. Parts two and three will look at accessing pension savings and saving for later life. 

Pensions are an attractive target for fraudsters due to their high value and the fact that many people do not engage with them until much later in life.

A review of the cases reported to Action Fraud in 2018 by the Financial Conduct Authority and The Pensions Regulator showed that victims of pension scams lost on average £82,000 each.

As part of the DWP’s response to the coronavirus outbreak there was a commitment to undertake detailed work on pension scams. 

Rt Hon Stephen Timms MP, Chair of the Work and Pensions Committee stated “more flexibility means more potential for the unscrupulous to take advantage and scam savers out of what will very often be their largest financial asset, crippling their dreams of a comfortable retirement. Extra financial hardship brought about by the coronavirus pandemic also provides an added opportunity for tricksters to prey on those people who may be looking to use their pension savings as a form of support.”

The enquiry aims to understand more about the scale of the pension scam problem, the types of scams used and what more can be done to prevent them.

Guaranteed Minimum Pension (GMP) equalisation newsletter - July 2020
(AF3, FA2, JO5, RO4, RO8) 

In this newsletter HMRC are giving guidance to supplement the existing guidance in the Pensions Tax Manual relating to benefit adjustments for registered pension schemes with periods of contracted out pensionable service between 17 May 1990 and 5 April 1997. This is following the Lloyds Case where a number of methods for equalising GMP were considered.

This guidance covers:

• previous lump sum payments;
• future lump sum payments. 

Previous lump sum payments

Certain lump sum payments, such as trivial commutation lump sums and winding up lump sums, require the member to extinguish all rights under the scheme and have limits on how much can be paid out.

Requirement to extinguish benefits: The guidance confirms that these lump sum payments will not stop being authorised payments purely due to GMP equalisation, i.e. where further entitlement to benefits is identified.

Payment limits: However, any increase in the value of benefits as a result of GMP equalisation will count towards the various payment limits. This can mean where the revised value exceeds the limits it can result in the payment becoming unauthorised unless it meets the conditions for another type of authorised payment.

Future lump sum payments

This covers the actual payment of any top up payments that are made as a result of GMP equalisation. The guidance confirms that top-up payments must meet the conditions in place as the time the top-up is paid. This may mean in some cases the top-up payment cannot be an authorised payment or may be a different form of authorised payment to the original payment. The example HMRC provide is that top up payment relating to a trivial payment made in 2015 could not be a trivial lump sum but may be payable under the small pots rules if it meets the relevant conditions. Any top-up payment will be taxable in the tax year it is made.

 

PLSA have issued call for evidence on plans to improve support for those navigating pension freedoms
(AF3, FA2, JO5, RO4, RO8)

The Pensions and Lifetime Savings Association (PLSA) is seeking input on its plans to try and improve the support available for those accessing their pensions.  

PLSA research indicated that 71% of savers in defined contribution (DC) schemes wanted support when deciding how to access their funds. They state there is a significant body of evidence indicating that the range of options is leading to poor decision making and complexity can lead to people ‘choosing not to choose’.

PLSA have issued a call for evidence on its proposals aiming to protect people who don’t engage, or don’t fully understand, the choices they make when moving towards retirement or semi-retirement.

They propose introducing a new regulatory regime that will require pensions schemes to support their members when making decisions about how to access their pensions. The proposals will include signposting to products that meet minimum quality standards. They will aim to provide a framework to provide a broadly consistent customer journey for all pension savers.

The deadline for responses is 4 September 2020 and full details of the proposals can be found here.