The twenty ninth edition of this HMRC Newsletter, published today, focuses particularly on the Finance Act 2007* changes. Relevant amendments to the RPSM are in the pipeline and expected to appear on the web quite soon (watch this space).

*This year’s Finance Bill received Royal Assent on 19 July 2007 (see Aries report) and has now become the Finance Act 2007 (FA 07).

Amendments to FA 04 relating to pensions schemes can be found at sections 68 to 70 and Schedules 18 to 20 FA 07. Key areas are as follows.

Personal Term Assurance

New s.195A FA 04 removes tax relief from member contributions to pay premiums to a personal term assurance policy after

• 31 July 2007, if it is under an occupational pension scheme, or
• 5 April 2007 under any other registered pension scheme.

A personal term assurance policy (a non-group life policy) is a policy that either

• will only 'pay out' on the death of one individual, although a number of people may be covered by the policy, or
• will 'pay out' on the death of more than one person where all the individuals covered by the policy are connected (broadly, this means family members).

Certain policies are protected from the changed treatment, and member contributions to these policies may continue to receive tax relief, provided the term is not extended and the benefits not increased.

Group life policies are not affected (provided the individuals are not connected) and neither is tax relief on employer contributions.

Aries Comment: as we noted on Budget Day, this reactionary change introduces a clear bias against personal pensions into the FA 2004 pensions tax regime.

Alternatively Secured Pensions (ASPs)

Section 69 and Schedule 19 FA 07 amend FA 04 so that

1. there is now a minimum income requirement: at least 55% of the 'basis amount' each year;
2. the maximum income has increased from 70% of the basis amount to 90%;
3. transfer lump sum death benefits are now unauthorised payments;
4. 10-year guarantees on ASPs are banned where the member dies on or after 6 April 2007; and
5. funds belonging to untraceables at age 75 can be held in suspense accounts instead of automatically being treated as ASPs.

Miscellaneous Amendments

Section 70 and Schedule 20 FA 07 contain miscellaneous measures amending FA 04, concerning

• Persons by whom registered pension schemes (PPs) may be established;
• Unauthorised payments and the Scheme Sanction Charge;
• Surrenders;
• Scheme pensions where ill-health condition met;
• Member or dependants' unsecured pensions: reference periods;
• Pension commencement lump sums;
• Winding-up lump sums;
• Lump sum death benefits - Time Limits and Inheritance tax;
• Taxable property and UK-REITS; and
• Transitional protection.

Particularly noteworthy among these changes are the following (all made retrospective to A-Day):

1. the new permission for a partial transfer to a money purchase arrangement (that is not a cash balance arrangement) without loss of enhanced protection from the Lifetime Allowance charge;
2. extension of the period for payment of a PCLS to 6 months before and 12 months after the date when the member becomes entitled to the related pension (also made retrospective to A-Day);
3. ill-health pensions can now be reduced instead of having to stop them altogether; and
4. extension of the time limit for payment of lump sum death benefits to 2 years from the scheme being notified of the member's death.

Other News

Assignment of Annuities

HMRC officially confirms that the assignment of an annuity contract from the scheme trustees to a member on the winding-up of a registered pension scheme is an authorised payment where the annuity policy/contract provides the benefits that would otherwise have been paid by the scheme.

Overpayments made in Error

In Newsletter No 19 HMRC announced that unauthorised payments not exceeding £250, which constitute overpayments of pension instalments made in error, do not need to be reported on the scheme Event Report and nor would the recipient have to report the payment on their own SA return. Newsletter 29 extends this £250 limit to includes unauthorised payments which take the form of lump sum payments made in error. Further guidance on this in the RPSM is promised.

Enquiries about pension legislation in Finance Act 2004

HMRC Code of Practice 10 [PDF] explains that if you are uncertain about their interpretation of the law, or the application of the law to a particular transaction, they will answer questions about the application of legislation only in the last four Finance Acts. With the arrival of this year's Act, FA 04 is now excluded (because exceptionally, there were two Finance Acts in 2005)! Graciously, however, HMRC has agreed they will continue to deal with pension enquiries about FA 04 under CoP 10 for at least another year.

Mandatory electronic filing of information with HMRC (e-mandation)

A further warning - first given in Newsletter 27 on 10 April 2007 - that it will be mandatory for Scheme Administrators to file the following information electronically and in the prescribed format from 16 October 2007:

• An application to register a pension scheme
• A Registered Pension Scheme Return
• An Accounting for Tax Return
• A Scheme Administrator’s Declaration
• An Event Report
• Notification of Winding-up a Registered Pension Scheme
• Notification of Termination of a Scheme Administrator’s appointment.

Scheme Administrators have barely another six weeks to ensure that they are ready.

A new Guide [PDF] to using the online service is available. Attention is also drawn to HMRC's Scheme Administrator factsheet [PDF].

The SA970 - Self Assessment Return for Pension Schemes - will continue to be issued on paper. It will not be mandatory to file any other form or return not listed above electronically.