HMRC's twenty-fifth monthly newsletter leads with the new interpretation of the 'permitted margin' (see advance notice in previous Aries article) which exempts many schemes from the necessity to apply a BCE 3 LTA test to an increase to a pre-A Day pension (BCE 3).

The interesting point is that although clearly defined in the Act (FA 2004 Sch 32 para 12) as a percentage, the Newsletter describes it more loosely:

"P per cent does not need to relate to a year-on-year percentage increase. Rather, the expression of a percentage exists as a common form of comparison with the other forms of increase. . . . In summary, if it can be established that an increase to a scheme pension which started before 6 April 2006 would have been permitted within the scheme provisions as they stood at 5 April 2006, it may be regarded as being within P%."

This would cover discretionary increases of a fixed amount, for example, where the scheme rules as at 5 April 2006 provided for increases of the greater of RPI and 5% but subject to a minimum fixed amount.

While few are likely to jib at this more flexible interpretation, it is surely a significant comment on the limitations of prescriptive legislation in place of a discretionary regime, to govern the real world of pensions. There is presently no indication that HMRC will seek to persuade Ministers to add this point to the list for the Finance Bill 2007 (or 2008).

The Newsletter also confirms the figure for the notional earnings cap for 2007/08 as £112,800. This is based on the original prescription in ICTA 1988 s.590C (5).

A warning is given that scheme administrators should not confuse a Pensions Notice 1 issued under FA 2004 s.250 to complete a Pension Scheme Return (APSS301 or APSS313) with a Self Assessment Tax Return (SA970), which is likely to be issued at around the same time. Previously the SA970 return was issued to all self administered schemes; but with effect from 6th April 2007 the SA970 will only be issued to scheme trustees if there has previously been any tax liability or a repayment has been claimed.

Any ex gratia payment made on retirement or death is now treated as an Employer-Financed Retirement Benefits Scheme, for tax purposes (and has been from 6 April 2006). A notice that the former Statement of Practice 13/91 has been withdrawn was posted on the HMRC website earlier this month (not, as the Newsletter asserts, on 15 February 2006).

Finally, attention is also drawn to the newly-published guidance [PDF] on payments made in error, which we also reported earlier.

New SIs

The Registered Pension Schemes (Standard Lifetime and Annual Allowances) Order 2007 (SI 2007/494) has now been published and comes into force on 6 April 2007 (last week we noted the appearance of this Order in draft). It sets the Allowances for the tax years 2007/8, 2008/9, 2009/10, 2010/11:

These figures were originally announced in documents accompanying the 2004 Budget: the figures are now on a statutory footing.