Scheme members wishing to take advantage of the new flexible drawdown arrangements, which allow members to delay securing a pension beyond age 75, need to demonstrate to the Scheme Administrator (usually the trustees) that they have a minimum annual income of at least £20,000 – referred to as the Minimum Income Requirement (MIR). Where it turns out that the member does not satisfy the MIR, then a scheme sanction charge will arise, unless HMRC is satisfied that the scheme administrator reasonably believed that the MIR was satisfied and, in all the circumstances of the case, it would not be just and reasonable for him to be liable for the charge.
Relevant income for the MIR
“Relevant income” means any of the following kinds of income:
- Payments of a scheme pension or dependants’ scheme pension provided by a registered pension scheme;
- Payments of a lifetime annuity or dependants’ annuity made by a registered pension scheme;
- payments under an overseas pension scheme which, if the Scheme were a registered pension scheme, would fall within paragraph (a) or (b);
- Payments of a social security pension; and/or
- Payments under the financial assistance scheme.
In Newsletter 49, HMRC has provided some guidance for Scheme Administrators on how to demonstrate that they have taken reasonable steps to satisfy themselves that the individual member meets the MIR. These include:
- Considering whether they need to make further enquiries beyond the standard MIR declaration;
- Keeping an audit trail to demonstrate that each case has been considered on its merits; and
- Getting more specific details on income sources where appropriate, including confirmation from the member as to which income category source (see table) they think it falls under.
Read Newsletter 49 in full here