Guidance

Newsletter 141 ― July 2022

Published 21 July 2022

1. Legislation Day (L-Day) 2022

At Legislation Day 2022, the government published draft legislation in connection with the following pension measures:

1.1 Collective money purchase — winding up

The definition of collective money purchase (CMP) benefits is linked to the definition in the Pension Schemes Act 2021 (PSA 2021). The legislation provides for a periodic income to be paid in place of a scheme pension when a CMP pension scheme is in the process of being wound up.

The Finance Act 2021 treats that periodic income as a scheme pension for tax purposes, to prevent unauthorised payment tax charges from applying.

Regulations made under PSA 2021 provide that any payments being made from a CMP pension scheme during winding up are not pension benefits. This means periodic income is defined as not being a pension under those regulations, which would make it an unauthorised payment for tax purposes.

The interaction between legislation made in, or under, PSA 2021 and the Finance Act 2004 does not provide for a CMP pension scheme, that is winding up, to designate funds to drawdown before those funds are transferred to another pension scheme. This would also be an unauthorised payment for tax purposes.

Following the written ministerial statement of 21 February 2022, the government has published draft legislation to clarify the tax treatment of pension payments and the transfer of crystallised benefits made from a CMP pension scheme, when that scheme is in the process of being wound up.

1.2 Provision in connection with the Dormant Assets Scheme etc

The UK’s Dormant Assets Scheme (‘the Scheme’) has been in operation since 2011. It enables banks and building societies to channel funds from dormant bank and building society accounts towards good causes.

The Scheme was expanded by the Dormant Assets Act 2022 to include assets in the insurance and pensions, investment and wealth management and securities sectors.

Dormant assets are financial products that have remained unused for many years without being reunited with their owner, despite efforts aligned with industry best practice.

Financial institutions transfer dormant assets to an authorised reclaim fund, Reclaim Fund Ltd. However, assets always remain the property of their owners, or their personal representative after death, who can reclaim money owed to them in full at any time.

This clause ensures that payments from an authorised reclaim fund are treated for the purposes of income tax as if they were from the pension asset that was initially transferred. This will provide certainty that the tax treatment remains constant for all those involved and provide industry with the confidence that they can return a reclaimed asset to a beneficiary as if it were the original pension.

For inheritance tax purposes, the measure will also ensure that the amount in held by the reclaim fund will be treated in the same way as the original asset in circumstances where the original owner was alive at the time of transfer but subsequently dies before the asset has been reclaimed.

1.3 Low-earners

There are two main methods of giving pensions tax relief. While they provide the same outcomes for most, low earners with taxable incomes below the Personal Allowance can have different levels of take-home pay depending on how their pension scheme is administered.

Those in schemes using relief at source receive a 20% top-up on their pension savings (even if they pay no income tax) whilst those in schemes using net pay arrangements receive tax relief at their marginal tax rate, i.e. 0%. The effect is that low earners in schemes using net pay arrangements have less take-home pay than they would if they were saving into a scheme that uses relief at source.

At Autumn Budget in 2021, the government committed to paying a top-up to low earners making contributions to pension schemes using a net pay arrangement in 2024 to 2025 onwards.

This measure places a duty on HRMC to make top-up payments directly to eligible individuals. HMRC will determine eligibility based on whether individuals have contributed to a net pay pension scheme and if their total taxable income is below the personal allowance in the same tax year.

The measure will come into force for the tax year 2024 to 2025, with payments to be made as soon as possible after the tax year in which the contribution is paid.

Eligible customers will be contacted and provided with details of how much they are entitled to, which will be calculated by HMRC systems. This should have minimal impact on pension schemes as HMRC will contact individuals directly.

2. Relief at source — annual return of information for the tax year 2021 to 2022

The deadline for submitting your annual return of information and APSS590 declaration for 2021 to 2022 to HMRC has passed. However, there are still returns outstanding from scheme administrators who’ve submitted interim payment claims for 2022 to 2023.

If a 2021 to 2022 annual return of information was due for your scheme and this is still outstanding, any subsequent interim payments will be withheld until we receive both the outstanding return and APSS590 declaration.

We want to remind pension scheme administrators that it’s important to use the right naming convention when submitting an annual return of information for 2021 to 2022. Using the wrong references on either the file name or within the annual return itself, means our systems will reject your submission and you’ll have to resubmit the return.

You can find details of how you should name your files in:

• the relief at source spreadsheet

• the electronic flat text file specifications

3. Managing Pension Schemes service

3.1 Migrating your pension schemes

Take action now to migrate your pension schemes to the Managing Pension Schemes service.

In Managing pension schemes service newsletter — April 2022 we let you know that pension scheme administrators can now migrate pension schemes from the Pension Schemes Online service to the Managing Pension Schemes service.

If you’re migrating pension schemes, you should select ‘Add a pension scheme from the Pension Schemes Online service’ and select each scheme you need to migrate. You should not select ‘Apply to register a new pension scheme’. If you’ve incorrectly tried to re-register an existing pension scheme that you’re an administrator for, email migration.mps@hmrc.gov.uk and put ‘Incorrect scheme registration’ in the subject line.

Find further guidance on migrating your pension schemes to the Managing Pension Schemes service.

3.2 Migrating your retirement annuity contracts and deferred annuity contracts

Take action now to migrate your retirement annuity contracts and deferred annuity contracts to the Managing Pension Schemes service.

For retirement annuity contracts (RACs) and deferred annuity contracts (DACs), no additional information will be required. You’ll only need to complete the declarations on the Managing Pension Schemes service to migrate these pension schemes.

If you’re a scheme administrator for multiple RACs and DACs, you’ll be given the option to migrate these altogether, by completing one set of declarations. It can take up to 48 hours for the RACs and DACs to be added to your list of schemes on the Managing Pension Schemes service.

If you’re migrating a large number of RACs and DACs, and the migration of any fails, they will reappear in your list of RACs and DACs available to migrate from the Pension Schemes Online service. You’ll need to check your list of RACs and DACs available to migrate to make sure all the schemes have successfully migrated to the Managing Pension Schemes service.

4. Accounting for Tax (AFT) returns

You can no longer compile and submit new Accounting for Tax returns for any quarter from 1 April 2020 onwards on the Pension Schemes Online service. If you need to submit any new AFT returns for any quarter from 1 April 2020 onwards, you’ll need to migrate the pension scheme.

If you need to submit a return for the quarter 1 April 2022 to 30 June 2022, you’ll need to have migrated your pension scheme and submitted the return on the Managing Pension Schemes service by the filing deadline of 14 August 2022 to avoid interest and penalties.

Find information on how to submit an AFT return using the Managing Pension Schemes service.

5. Pension flexibility statistics

HMRC can now give more information on the number of tax repayment claim forms processed for pension flexibility payments.

From 1 April 2022 to 30 June 2022, we processed:

• P55 — 7,345 forms
• P53Z — 1,746 forms
• P50Z — 927 forms

Total value repaid: £33,689,819

The tax repayment figures for the period 1 July 2022 to 30 September 2022 will be published in Pensions schemes newsletter ― October 2022.

6. Qualifying Recognised Overseas Pension Schemes (QROPS) transfer statistics

The number of transfers in to Qualified Recognised Overseas Pension Schemes (QROPS) has risen to 3,900 in 2021 to 2022, up from 3,000 in 2020 to 2021.

The total value of these transfers was £517m up from £416m in the previous year.

Year	Number of Transfers	Total Value of Transfers
2006 to 2007	2,500	£120,000,000
2007 to 2008	5,700	£350,000,000
2008 to 2009	6,100	£360,000,000
2009 to 2010	6,700	£460,000,000
2010 to 2011	12,800	£1,360,000,000
2011 to 2012	16,400	£1,040,000,000
2012 to 2013	13,400	£1,000,000,000
2013 to 2014	11,300	£860,000,000
2014 to 2015	20,100	£1,760,000,000
2015 to 2016	13,700	£1,500,000,000
2016 to 2017	9,700	£1,220,000,000
2017 to 2018	4,700	£740,000,000
2018 to 2019	5,000	£640,000,000
2019 to 2020	4,400	£550,000,000
2020 to 2021	3,000	£416,000,000
2021 to 2022	3,900	£517,000,000

The figures for 2022 to 2023 will be published in July 2023.