Key points

  • New money laundering regulations came into force last month which require trustees to:
    • register with HMRC for the purposes of the regulations;
    • keep records about beneficial owners of the trust; and
    • disclose information about beneficial owners to HMRC on request.
  • The application of the legislation to pension scheme trustees is unclear at the moment but HMRC guidance confirms that pension scheme trustees don’t need to register with HMRC for the purposes of the legislation.
  • Pension scheme trustees should consider whether they need to take any steps to ensure member records are accurate and up to date.
  • Trustees found to be in breach of the regulations could face criminal and civil penalties.
  • Employers could face reputational issues if trustees of their pension scheme(s) are found to be in breach of the legislation so employers should consider engaging with pension scheme trustees about the steps being taken to ensure compliance.

Introduction

New money laundering regulations transposing the Fourth Money Laundering Directive (the Directive) into UK law came into effect on Monday 26 June. Due to the general election, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 were only finalised four days before the regulations came into force. The regulations require trustees to register (unless exempt) with HMRC, keep records about the “settlor” of the trust and any known beneficiaries, as well as requiring trustees to provide this information to HMRC on request. Certain parts of the regulations only apply to trustees “acting in the course of business”, i.e. professional trustees.

Does the legislation apply to pension scheme trustees?

The legislation applies to trustees of any express UK trust. A UK trust is a trust which has: (i) all UK resident trustees; or (ii) at least one UK resident trustee and a “settlor” who was domiciled in the UK at the time the trust was established, or when the settlor added funds to the trust.

There is some ambiguity as to the extent that the regulations apply to trustees of pension schemes and this has been raised with HM Treasury by a number of legal professionals. Updated guidance issued by HMRC after the regulations came into force confirms that occupational pension schemes are “low risk” trusts, and therefore trustees who only deal with pension schemes do not need to register with HMRC for money laundering purposes. However, the guidance doesn’t exempt pension scheme trustees from other obligations under the regulations. The Directive itself does not include any exemptions for pension scheme trustees and therefore further guidance from the government is needed to clarify how the legislation applies to pension scheme trustees.

What information do pension scheme trustees need to hold?

The regulations require trustees to keep accurate and up-to-date records of information about all the beneficial owners of the scheme, and to provide that information on request, to other parties that are required to carry out anti-money laundering checks when trustees enter into a transaction with, or form a business relationship with, such parties. Beneficial owners of a pension scheme include the “settlor”, the trustees, the members and beneficiaries and any other natural person exercising effective control over the scheme.

If a scheme has a class of beneficiaries, not all of whom have been determined, then trustees will need to provide a description of that class rather than the details to be provided in respect of known beneficiaries. As pension scheme trustees won’t always know details about spouses, the regulations allow trustees to describe spouses a class of beneficiaries, where individual spouses have not been determined.

For the purposes of a pension scheme, “settlor” could include participating as well as sponsoring employers but the legislation is unclear, and for schemes that have changed their sponsoring employer, it could also include the original sponsoring employer.

In relation to scheme members, pension scheme trustees will need to keep records of their name, their date of birth, their NI number or unique taxpayer reference, their usual residential address if there is no NI number or unique taxpayer reference and their passport details if they are overseas residents. Trustees will also need to keep records about the “settlor” such as its name, unique taxpayer reference, details about its company registration, its registered office, its legal form and its governing law.

What information needs to be disclosed to HMRC? 

If a scheme is liable to pay certain taxes in relation to its assets or income (including income tax, stamp duty land tax, land and buildings transaction tax and stamp duty reserve tax), the information that trustees are required to keep under the regulations (see What information do pension scheme trustees need to hold? above) must be provided to HMRC by 31 January 2018, so that HMRC can hold the information on a central register. Schemes that invest directly in shares or property will therefore need to provide the relevant information to HMRC by 31 January 2018 as they will be liable for stamp duty. Other schemes will need to consider whether they are liable for any of the other taxes specified above. Payment of a member’s annual allowance charge is unlikely to trigger the obligation to disclose information to HMRC by January 2018. 

If a scheme does not currently have any liability to pay any of the taxes specified above, but a liability to pay one or more of those taxes arises in a subsequent tax year, trustees must disclose the relevant information to HMRC by 31 January following the end of the first tax year when the liability to pay one of those taxes arises. This is a change from the draft regulations which required trustees to provide information to HMRC by 5 April 2018, or by the end of the tax year after a liability to pay one of the specified taxes first arises.

If a scheme does not have a liability to pay any of the taxes specified above, trustees must hold the relevant information and pass it on to specified government agencies (including HMRC, the Financial Conduct Authority and the National Crime Agency), if required. 

What steps should employers and trustees be taking to comply with the regulations?

As part of good scheme governance, trustees should already have access to most of the information that they are required to hold in respect of members as the guidance on record keeping from the Pensions Regulator requires trustees to keep accurate member data. Trustees should consider if they need to take any additional steps to ensure their records are accurate and up to date. For example, trustees may need to think about introducing procedures to collect additional information that they don’t currently hold which is required to be kept under the regulations.

We understand that HMRC is expected to issue further guidance to industry in the summer on how the regulations will work in practice. We hope that this guidance will clarify the extent to which the new regulations apply to pension scheme trustees and help trustees to decide if they need to take any steps to comply with the regulations.

Failure to comply with the obligations to keep records and provide it to HMRC is a criminal offence and could also result in civil penalties. However, provided that trustees take all reasonable steps and exercise due diligence to comply with the regulations, and follow any guidance issued by HMRC, trustees would not be subject to civil penalties, and would not be guilty of a criminal offence.

Although the regulations potentially impose obligations on pension scheme trustees, an employer could risk reputational issues if its pension scheme trustees are found to be in breach of the regulations. Employers should therefore consider engaging with their trustees about the steps that trustees may need to take to comply with the regulations.