Included in this issue: Pension Schemes Bill Master Trust provisions may catch SSASs; HMRC consults on new provision of information requirements re lump sum death benefits; FCA and DWP announce caps on early exit charges and more...

Pension Schemes Bill Master Trust provisions may catch SSASs

The Pension Schemes Bill published on 20 October 2016 will introduce a prohibition on operating a master trust scheme (MTS) unless the scheme is authorised by the Pensions Regulator. Existing MTSs will have six months from commencement of the Act to apply for authorisation. One controversial aspect of the Bill is that it appears to potentially impose requirements for events occurring from 20 October 2016 onwards to be reported to the Regulator within 7 days, notwithstanding that the Bill has not yet become law and its final terms are not yet known.

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HMRC consults on new provision of information requirements re lump sum death benefits

HMRC is consulting on draft regulations which will impose new requirements regarding the information which scheme administrators will have to provide when paying taxable lump sum death benefits to a trust.

The background to the regulations is that a lump sum death benefit will generally be taxable if it is paid in respect of a member who died aged over 75. If paid to an individual, the lump sum will be taxable at the individual's marginal rate of income tax. If paid to a trust (other than a "bare trust") the lump sum is taxable at the rate of 45%, but if a lump sum is then paid to an individual with a marginal rate of income tax below 45%, that individual may be able to obtain a refund on all or part of the tax paid. The purpose of the regulations is to ensure that such individuals have the information they need to make a tax refund claim without having to carry out calculations themselves.

The regulations will oblige the scheme administrator to provide various information to the trustees of the trust to which the death benefits are paid, including the amount of the lump sum on which tax has been charged, the amount of the tax charge, and various details of the scheme and the deceased member. The information will have to be provided within 30 days of the payment being made. The trustees of the trust receiving the lump sum will have parallel duties to pass the information on within 30 days of making a payment to a beneficiary.

The closing date for comments on the draft regulations is 5 December 2016.

FCA and DWP announce caps on early exit charges

On 15 November 2016 the FCA and DWP announced caps on early exit charges in personal pension schemes and occupational pension schemes respectively.

In relation to personal pension schemes, an exit charge cap will come into force on 31 March 2017. Broadly, an "early exit charge" is a charge imposed on a member who, having reached age 55, takes or transfers his benefits or converts them into different benefits where the charge would not apply if the member had reached his expected retirement date. Some things are specifically excluded from the early exit charge definition, eg certain types of market value adjustment. For members entering into a contract or arrangement on or after 31 March 2017 there will generally be an outright ban on early exit charges. For members who "joined or incremented" a scheme before 31 March 2017, early exit charges can not be increased after that date, and existing early exit charges can not exceed 1% of the value of the member's benefits being taken, converted into different benefits or transferred.

In relation to occupational pension schemes, the DWP plans to broadly mirror the regime for personal pension schemes, but it is intended that the relevant regulations will come into force in October 2017. The early exit charge prohibition will apply to new members joining a scheme on or after the coming into force of the regulations, with the cap applying in respect of individuals who were already members before that date. The prohibition/cap will apply to the provider/scheme trustees depending on who imposes the charge.

Tax Tribunal case raises risk of transfers being unauthorised payments

The ruling by the First-tier Tribunal of the tax courts in the case of Clark v Revenue & Customs has raised the risk that a transfer made to a scheme which has been registered by HMRC may subsequently be held to be an unauthorised payment on the grounds that the scheme is not a "pension scheme" at all due to the trusts of the scheme being void for uncertainty. The judgment also illustrates that a payment to a party other than the member can still be "in respect of" the member and therefore an unauthorised member payment, and that courts will be willing to look behind complex legal structures to the reality of whether the member can access the funds transferred out of a scheme.

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Recognised transfer cannot have intermediate stage

In the case of Browne v Commissioners for HMRC, the First-tier Tribunal of the tax courts has upheld HMRC's determination that where a payment made from the transferring pension schemes was held in the member's own bank account before being paid to the receiving scheme, the payment did not qualify as a "recognised transfer" for the purposes of the Finance Act 2004 and was therefore subject to an unauthorised payments charge.

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Court discharges scheme administrator from scheme sanction charge where reasonable belief that no unauthorised payment made

In the case of Sippchoice Limited v Commissioners for HMRC, the First-tier Tribunal of the tax courts has discharged a scheme administrator from the scheme sanction charge which HMRC had sought to impose, holding that the scheme administrator had reasonably believed there was no unauthorised payment.

A number of members of the SIPP in question had invested their funds in a company called Imperium Enterprises Limited ("Imperium"). Unbeknownst to the scheme administrator, Imperium was being used as part of a pension liberation scheme. Imperium made loans to a company known as "BOH" which subscribed in cash for new shares in a company known as "SKW" which made loans to the scheme members who had invested their SIPP funds in Imperial.

Before allowing members to invest in Imperium, the scheme administrator checked Imperium on the Companies House website, and also looked at Imperium's own website. One of the directors of Imperium gave his occupation as "solicitor", which reassured the scheme administrator. Imperium described itself as a property investment company, and the administrator concluded that the investment strategy described on Imperium's website appeared credible and genuine. A director of Imperium confirmed that it would not be making loans to scheme members or other individuals. As the number of members investing their SIPP funds in Imperium increased, the scheme administrator raised concerns with Imperium as to whether a pension liberation scheme was being operated, as was given misleading assurances by Imperium's representatives. When a member wrote to the scheme administrator directly and stated that he had only transferred his pension fund to the SIPP in order to secure a loan with SKW, the administrator stopped allowing any further investments in Imperium.

The Tribunal held that the scheme administrator's belief that there were no unauthorised payments being made was reasonable. The scheme administrator had been concerned to satisfy itself that no "simple" pension liberation scheme was in operation whereby Imperium or its debtors made loans to the scheme members. It had not appreciated that a more sophisticated pension liberation scheme was in operation. The Tribunal also held that there was nothing exceptional about the circumstances of the case that made it just and reasonable to impose a scheme sanction charge in any event.


The judgment in this case relates to events which occurred in 2010/11 when there was much less awareness of pensions liberation. Had the same events occurred in 2016, the court may well have reached a different conclusion.

Court judgment highlights dire consequences of getting execution formalities wrong

The case of Briggs v Gleeds which was due to be heard in the Court of Appeal has now settled, meaning that there will be no appeal of the points decided in the High Court judgment. The case concerned a scheme originally established as a defined benefit scheme. Amendments to the scheme were required to be made by deed. Over a period of decades, a number of amending documents were executed that were intended to be deeds. However, the documents did not meet the execution formalities for a deed, as the employer was a partnership and the partners' signatures had not been witnessed. The changes purportedly made included the introduction of a money purchase section, the introduction of member contributions, a reduction in the accrual rate for the defined benefit section and the closure of the defined benefit section to future accrual.

The High Court judge rejected a number of legal arguments for treating the deeds as valid. He recognised that the upshot of this would be that the scheme would have huge liabilities for which no provision had been made in the funding of the scheme, but commented, "Unfortunate consequences are, I am afraid, unsurprising when so many documents have not been validly executed."


It can be tempting to regard execution formalities as a minor point of detail, but this case illustrates that a failure to get execution formalities right can have potentially disastrous consequences. The mere fact that all parties have proceeded on the basis that they have executed a legally binding deed does not necessarily mean that a court looking at the matter years later will treat the deed as legally valid, and a signing clause that works for a limited company will not necessarily be appropriate for other types of organisation.

Pensions Regulator: Trustees should assess cyber security risk

Speaking at the Society of Pension Professionals' annual conference, the Pensions Regulator's chief executive, Lesley Titcomb, urged scheme trustees to take steps to protect scheme data against cyber-attacks. She warned that as pension schemes hold a lot of personal and financial data, they are likely to be an attractive target for cyber-criminals, and scheme trustees, as data controllers under data protection legislation, have a duty to ensure that both they and any third party service providers have appropriate policies and procedures in place. Ms Titcomb said that cyber security should be a key risk on schemes' risk registers.

Key contact

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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