On 16 July 2013, HMRC published an announcement clarifying the tax situation of ‘underfunded’ bulk transfers in relation to the draft Annual Allowance Charge Order. This follows their announcement in April 2013 that a revised draft order would be released in early June.
HMRC confirms the government’s position that pension input amounts should not arise where the following criteria are met:
- there is a bulk or block transfer of a group of members from one registered pension scheme to another as a result of an employer rearranging its pension scheme or as part of a business transaction;
- the member’s retirement benefit in the receiving scheme represented by the transfer is the same in principle as if it had remained in the original scheme. This requirement may be expressed using a value test to ensure that some variations in benefit format can be accommodated; and
- the transfer is unfunded, causing a pension input amount. ‘Underfunded’ is where the sums or assets transferred to the receiving scheme are insufficient to support the level of benefits promised by the receiving scheme.
HMRC states that the draft order will include revised provisions to address the underfunded bulk transfer issue. It intends to release a revised draft order as soon as possible, after which there will be further consultation and Parliamentary scrutiny before the order is finalised. The provisions will have effect for pension input amount calculations for 2011–12 and subsequent tax years.
This latest HMRC update should alleviate current uncertainty that has hindered restructuring or merger activity. However, schemes need to be mindful of the 6 October 2013 deadline for providing pension input information to members for tax years 2011–12 and 2012–13. See Deadline approaching for automatic pensions saving statements below for more information.