HM Revenue & Customs (HMRC) have written to us clarifying how the proposed anti-forestalling measures contained in the Finance Bill 2009 may affect scheme mergers. Broadly, the Finance Bill 2009 (the Bill) contains proposals to introduce a tax charge on any pensions savings that exceeds £20,000 (the new special annual allowance) if the pensions saving is not part of a regular pattern of saving. The tax charge only applies to individuals with a relevant income of £150,000 or more. The measures will have effect from 22 April 2009. For background see EPB bulletin 30 April 2009.
The Finance Bill 2009 provides an exemption for scheme members that transfer to a “new or re-activated” pension scheme. Without this exemption on a merger or bill transfer all pension savings made under the receiving scheme would be treated as new (and therefore at risk of the tax charge) because the scheme members would not have any saving history in the receiving pension scheme. However, it is unclear from the wording of the draft legislation whether the exemption would apply where there is a scheme merger and members transfer to a new section under an already existing pension scheme. The concern was that in such a situation, the transferee pension scheme would not be new or re-activated.
HMRC have now confirmed to us the exemption will apply in situation where scheme members transfer to a new section of an already existing scheme. However, some conditions apply:
- the receiving scheme must have at least 20 members being provided with benefits “on the same basis” as the member who transfers; and
- each individual employer would need to employ at least 20 members in the scheme to satisfy this test. It is not possible to satisfy this threshold by combining employees from different employers in the same scheme or corporate group.
The Bill also does not define what is meant by “on the same basis”, so schemes and employers considering transferring members to a new scheme, re-activated scheme or a new section of an existing scheme will need to be cautious when relying on this exemption.
The current Bill is still subject to change as it makes its way through Parliament.