New regulations, coming into force in June 2017, will introduce stricter EU anti-money laundering requirements into the UK and seem likely apply to pension plans. The potential criminal penalties for breach of the regulations are likely to bring this to the forefront of people’s minds.

Will the new regulations apply to pension plan trustees?

Probably!

The draft regulations (and response to an earlier consultation, which took place last year) are interesting because, as currently drafted, occupational pension plans will be caught by some elements of the new regulations. Express trusts (including occupational pension plans) will be required to

  • keep accurate records of all ‘beneficial owners’ of the trust (for pension plans this will mean the trustees, employers, anyone else who exercises control and the beneficiaries) and
  • provide those records to HMRC where the trust has incurred a liability to pay certain taxes (including income tax on dividends).

Respondents to the consultation queried whether HMRC might exclude certain types of express trust from the new requirements. HMRC has stated that as the Fourth Money Laundering Directive includes all forms of express trust, so must the new regulations.

Do pension plan trustees need to take any action?

Most Likely!

The amount of work involved for trustees and administrators will very much depend upon whether HMRC modifies the definition of a ‘beneficiary’ for pension plans. At present, the regulations as drafted would require trustees to keep accurate data on trustees, employers, other persons who exercise control over the plan and all beneficiaries who can be identified – e.g. active members, persons in receipt of pension, deferred members. Where a trust has a class of beneficiaries, not all of whom have been determined (for example potential recipients of survivor’s benefits), then trustees will only need to maintain a description of the class of beneficiaries.

Trustees of most plans will also be required to provide information about the pension plan to HMRC, along with all of the data required to be maintained in respect of ‘beneficial owners’. We expect that HMRC might design a form for completion by trustees.

Whilst the new regulations seem likely to cause pension plan trustees administrative headaches, this might not be the case if their implementation follows the course of the 2007 Money Laundering Regulations. When the 2007 regulations were first issued there was confusion around the extent to which pension plan trustees would be affected. In the end, and after the 2007 regulations came into force, HMRC issued guidance stating that occupational pension plans were considered to be low risk and pension plan trustees would not be obliged to register with HMRC.

It’s possible, therefore, that HMRC might modify (through guidance) the effect of the new regulations on pension plans. Don’t hold your breath, however. HMRC has already stated that it won’t exclude any form of express trust from the requirements. Additionally, there has been no indication from HMRC so far that the definition of ‘beneficiary’ might be modified for pension plans. Indeed, whilst an occupational pension plan is considered to be low risk, HMRC has said that it does intend using the data collected for other purposes, for example for ensuring early on that the correct amount of tax is paid when there is a payment from a trust to an individual.

What data will trustees need to record?

Trustees will have to keep records that can also be made available to law enforcement agencies and the UK Financial Intelligence Unit. The data to be recorded includes name, address, date of birth, NI number or unique taxpayer reference of all ‘beneficial owners’ and passport details for non-UK resident beneficial owners. Whilst most plans will keep the data required as a matter of course, if the definition of ‘beneficiary’ is not modified for pension plans, trustees will need to make sure that their data is regularly cleansed and is accurate. TPR has been emphasising the importance of accurate data for several years now, so hopefully most trustees will be on top of this. Unlike the penalties for failing to keep accurate records under the TPR regime, however, failure to keep accurate records under the new regulations will be a criminal offence, which could result in a fine and/or up to 2 years’ imprisonment for trustees.

What other impact will there be for trustees?

Under the current money laundering regime, providers who are required to carry out anti-money laundering checks on the trustees of an occupational pension plan (usually when they are first engaged to act) can undertake ‘simplified’ due diligence. Under the new regulations, service providers would still be able to undertake simplified due diligence but would be required to consider whether it is appropriate. Those being cautious might require additional information about the trust from trustees, including member data records. Whilst we expect most providers will conclude that simplified due diligence would still be appropriate, this is something for trustees to bear in mind (along with the potential data protection issues surrounding the supply of member data to the service provider).

Given the potential for criminal sanctions, trustees may also wish to update their risk registers accordingly.

By what date must trustees be compliant?

The new regulations will apply from 26 June 2017, so trustees will need to be comfortable with the quality of member data records by that date. Additionally, trustees will have to provide information and data to HMRC before 6 April 2018 (or the end of the tax year in which they first become liable to pay any income tax, CGT, inheritance tax, stamp duty land tax or stamp duty reserve tax). This constitutes an ongoing reporting requirement – any changes in a subsequent tax year will need to be notified to HMRC.

What are the practical consequences for trustees?

Whilst nothing is certain until the final form of the new regulations and HMRC guidance are available, it is likely that trustees will have some form of record keeping and reporting obligations under the new regulations. Most trustees are likely to want to instruct their plan administrators to carry out these compliance tasks. Where the work involved increases risk or responsibility for plan administrators there is likely be a knock on effect on administration costs and/or a need to renegotiate administration agreements. A review of any administration agreement could be carried out as part of a review and update in anticipation of implementation of the General Data Protection Regulation. As ever, legal advice is always advisable when service provider agreements are updated.