Pensions Update December 2014 In this issue Season's Greetings Autumn Statement released Deduction of VAT on pension fund management costs and services Revaluation rates for deferred pensions published FCA publishes guidance guarantee policy statement and fee consultation Regulator issues Section 89 report on a pension liberation model High Court judgment permits sale of Section 75 pensions debt to a third party STOP PRESS: Draft Finance Act 2004 (Registered Pension Schemes and Annual Allowance Charge) (Amendment) Order 2015 published This newsletter is for information purposes only. Its contents do not constitute legal advice and should not be regarded as a substitute for detailed advice in individual cases. If you wish to discuss any of these issues further, please contact your usual Baker & McKenzie lawyer. Jeanette Holland email@example.com Robert West firstname.lastname@example.org Chantal Thompson email@example.com Arron Slocombe firstname.lastname@example.org Season's Greetings Welcome to the December 2014 edition of the Pensions Update. We would like to take this opportunity to wish all our readers a very Happy Christmas and prosperous New Year. > Back to Top Autumn Statement released The Chancellor of the Exchequer delivered his Autumn Statement on 3 December, with no material pension announcements. The Chancellor extended the changes to the tax treatment of death benefits announced in September (as reported in our October 2014 Update to joint life and guaranteed annuities. This means that, from April 2015, beneficiaries of individuals who die under the age of 75 will be able to receive benefits from these policies tax free. It was also announced that the tax rules will be amended to permit any beneficiary to receive a benefit under a joint life policy, and not just a "dependant" as currently. These changes will be enacted via the Finance Bill 2015. Where an individual is over age 75, the beneficiary will pay a marginal rate of income tax (or 45% if the funds are taken as a lump sum payment). Lump sum payment will be taxed at the beneficiary's marginal rate from 2016-17. As anticipated, the Chancellor also confirmed that the pension flexibilities previously announced in respect of accessing and passing on DC pension pots will come into force in April 2015. > Back to Top Deduction of VAT on pension fund management costs and services New Briefs have been issued by HMRC in relation to VAT and pension funds. As mentioned in the "Stop Press" section of our November 2014 Update, two new VAT Customs and Revenue Briefs have been issued. Brief 43 covers VAT on pension fund management costs, addressing the PPG judgement. Brief 44 covers VAT treatment of pension fund management services, in light of the ATP judgment. We issued a special joint client Update with our tax team in November and attach a link to this alert to explain further the implications of these Briefs. > Back to Top
Revaluation rates for deferred pensions published The Occupational Pensions (Revaluation) Order 2014 has been laid before Parliament and will come into force on 1 January 2015. The Order sets out the revaluation percentages for deferred members who reach their scheme's retirement age in 2015. Both the higher and lower revaluation percentages for 1 January 2014 to 31 December 2014 are 1.2%. The relevant revaluation percentage is dependant upon the number of complete years between a member leaving pensionable service and reaching his scheme's retirement age. This Order can be accessed by clicking here. > Back to Top FCA publishes guidance guarantee policy statement and fee consultation Due to the 2014 Budget introducing increased flexibility for accessing DC pots, the Government announced the implementation of the new guidance guarantee, on which we reported in our October 2014 Update. On 27 November, the Financial Conduct Authority (the "FCA") issued a policy statement incorporating the (near final) standards required for those bodies responsible for delivering the guidance guarantee, which for parts of is relevant to trustees and employer sponsors of DC pension schemes (and schemes with a DC element). The FCA has also published the near final rules which require pension provider firms to direct their customers to the guidance services in connection with their retirement. Please click here to access the FCA's policy statement and explanatory document. In addition, the FCA published its annual fees consultation paper, entitled Regulatory fees and levies: policy proposals for 2015/16.Following the consultation conducted in July, this paper sets out the FCA's proposed policy changes to the fee and levy regime and says how the FCA plans to levy fees to fund the pensions guidance guarantee service. It is proposed that the pensions guidance levy will be raised from the following type of authorised firms in the following proportions: deposit acceptors (22%), insurers - life (22%), portfolio managers (22%), managers and depositaries of investment funds, and operators of collective investment schemes or pension schemes (22%) and advisory arrangers, dealers or brokers (12%).However, minimum thresholds have been implemented and advisers will need to earn £100,000 or more of annual income before they are obligated to contribute to the levy. The consultation closes on 2 February 2015. Please use these links to access the consultation paper and the FCA's explanatory statement. > Back to Top Regulator issues Section 89 report on a pension liberation model The Regulator has issued a report outlining its success in the High Court which resulted in the enforced winding up of the Lincoln Umbrella
Schemes (the "Schemes"). The Schemes were represented as using a model which enabled members to transfer their existing pension benefits to the Schemes and then surrender their rights to create a surplus. Members were told that they would be entitled to retrieve this surplus as it would effectively be owned by a company which they had established and which was one of the participating employers of the Scheme. The Regulator sought an injunction from the High Court to stop transfers to the Schemes and to prevent the use of this type of model going forward.The High Court found in favour of the Regulator, concluding that the supposed legal loophole which allowed members to access the surplus could not, and did not, work in the way represented by those administering them. The Regulator was keen to commence proceedings in the High Court in order to tackle this type of model which posed a threat to members' pensions.Over 1400 members have transferred over £134 million from occupational and personal pension schemes using this pension model from August 2011 to June 2013, with fees of over £14.7 million being charged in relation to these transfers. Members of these Schemes may incur substantial tax charges if HMRC were to take the view that an unauthorised payment has been made. To read the full judgment please click here and the Regulator's Section 89 Report can be accessed here. > Back to Top High Court judgment permits sale of Section 75 pensions debt to a third party BESTrustees Plc, as the sole trustee of the pension scheme linked to Kaupthing Singer & Friedlander ("KSF"), made an application to the High Court for permission to assign to a third party the scheme's Section 75 debt, originally estimated to be £74 million. KSF, the employer of the scheme, had entered administration on 8 October 2008 and was the UK subsidiary of the collapsed Icelandic bank, Kaupthing.This court determination was required in order to enable the winding up of the scheme to be completed. The High Court confirmed that a Section 75 debt was capable of assignment by the trustees or the managers of a pension scheme. In addition, the assignment was not prevented by the potential operation of the moral hazard regime available to the Pension Regulator. Mr Justice Birss directed that "assignment is something which a reasonable and properly advised trustee could enter into in the exercise of its powers". Following this decision, the Section 75 debt was subsequently sold. This is an interesting judgment for trustees, even if its relevance may be limited to cases where the scheme employer is in administration or some sort of financial distress. Please click here to read the full judgment. > Back to Top STOP PRESS HMRC has published the draft Finance Act 2004 (Registered Pension
Schemes and Annual Allowance Charge) (Amendment) Order 2015 This Order addresses the issues in relation to Annual Allowance charges arising on block transfers between pension schemes. The draft Order is expected to become law imminently, and will be retrospective to 6 April 2011. We will report further on this in our January 2015 Update. > Back to Top Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. Before you send an e-mail to Baker & McKenzie, please be aware that your communications with us through this message will not create a lawyer-client relationship with us. Do not send us any information that you or anyone else considers to be confidential or secret unless we have first agreed to be your lawyers in that matter. Any information you send us before we agree to be your lawyers cannot be protected from disclosure.
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