IEIM400960 - Non-Reporting Financial Institutions: Retirement Funds

NRFI: Retirement Funds

The definition of retirement fund differs between the regimes. It will be necessary for entities that are pension schemes or similar retirement arrangements to consider each of the definitions separately although the expectation is that most will be Non-Reporting Financial Institutions (NRFI) under both of them.

FATCA

Under the US IGA, retirement funds are defined by reference to the UK/US Double Taxation Agreement. Pension scheme is defined as any plan, scheme, fund, trust or other arrangement established in the UK which is:

1) Generally exempt from income taxation in the UK; and

2) Operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements.

This will include all UK pension schemes or other arrangements registered with HMRC under Part 4 of the Finance Act 2004, including those deemed registered by HMRC. The Pension Protection Fund is also listed as a NRFI.

Pension funds or pension schemes covered by IRS Announcement 2005-30, 2005-1 C.B. 988, on the Mutual Agreement on UK Pension Agreements are also included. Details of these can be found at http://www.irs.gov/irb/2005-18_IRB/ar10.html#d0e1440 .

CRS

There are three categories of retirement fund defined as NRFI

  1. Pension Fund of a government entity, international organisation or Central Bank – this covers pension funds of those entities that are themselves NRFI under these categories.
  2. Broad participation retirement funds – these are pension funds where no single beneficiary is entitled to more than 5% of the fund’s assets, are subject to regulation and provide information reporting to HMRC and satisfy at least one of four requirements (the fund is tax favoured; most contributions come from sponsoring employers; distributions or withdrawals are tied to specified events; and contributions by employees are limited by amount, generally by reference to earned income). As UK registered pension funds are subject to reporting and are tax favoured, where the condition that no single beneficiary can receive more than 5% of the fund’s assets is met the fund will be a NRFI.
  3. Narrow participation retirement funds – these are pension funds with fewer than 50 participants. The sponsoring employer must not be an Investment Entity [see IEIM400600] or a Passive NFE [see IEIM404040] and contributions to the fund by both the employer and employee are limited by reference to the earned income or compensation of the employee. Any participant of the fund who is not UK resident cannot be entitled to more than 20% of the fund’s assets and the fund must be regulated in the UK and report information to HMRC.

If a pension fund does not meet any of these definitions it may still not have anything to report if the pensions that it provides are within the definition of excluded products at IEIM401720.

The UK Pension Protection Fund is a NRFI for CRS purposes. It is a statutory corporation set up by Act of Parliament and is answerable to Parliament through the Secretary of State at the Department of Work and Pensions, as such it is a Government entity [see IEIM400930].