SIPP and SSAS Update

Legislation

Government confirms intention to cut Money Purchase Annual Allowance for 2017/18

The Government has confirmed its intention to cut the money purchase annual allowance from £10,000 to £4,000 for the current tax year, despite having dropped the relevant wording from the last Finance Bill in order to get it through Parliament before the General Election.

Another pensions-related measure dropped from the Finance Bill was the clause introducing an income tax exemption for up to £500 worth of employer-provided pensions advice. Measures relating to the taxation of overseas pensions and transfers to qualifying recognised overseas pension schemes were retained in the final version of the legislation.

General Data Protection Regulation

On 25 May 2018 the General Data Protection Regulation (GDPR) will come into force, placing new duties on anyone whose activities require them to hold data about identifiable living individuals. The GDPR will also greatly increase the fines which may be levied for a breach (up to 20 million Euros, or if higher in the case of an undertaking, up to 4% of the preceding financial year's worldwide annual turnover).

The GDPR will require "data controllers" (in a SSAS/SIPP context normally the scheme trustees or scheme operator) to have contracts in place with anyone who processes personal data for the data controller (eg a person who deals with the administration of the scheme on behalf of the trustees). The GDPR specifies in detail what data protection provisions the contract must contain. Existing contracts are unlikely to be compliant.

The GDPR sets out additional information which must be included in "fair processing notices", the information which a data controller has to give to an individual regarding the data it holds. We recommend that trustees/scheme operators provide members with updated fair processing notices before 25 May 2018. Preparing revised fair processing notices well in advance of the deadline will hopefully enable them to be coordinated with other member communications.

Trustees/operators should also make sure that the wording of existing sources of member information such as websites are GDPR compliant. For example, references to a £10 fee being chargeable for a data subject access request will no longer be appropriate, as the GDPR requires data to be provided free of charge on a first request.

New Money Laundering Regulations may catch pension schemes

New money laundering regulations which came into force on 26 June 2017 impose new duties on trustees. For more information, see our e-bulletin.

New corporate offence of failure to prevent facilitation of tax evasion

The Criminal Finances Act 2017 is due to create a new corporate offence of failure to prevent facilitation of tax evasion (expected to come into force in the autumn) whereby a company may be subject to an unlimited fine if it fails to prevent the facilitation of tax evasion by a person who is acting as the company's employee, agent or service provider. The new offence carries strict liability, but it is a complete defence to prove that the company had in place reasonable procedure to prevent the facilitation. For more information, click here.

Regulation of Master Trusts: Pension Schemes Act 2017 receives Royal Assent

In our November 2016 Update we reported on the Pensions Schemes Bill introducing a prohibition on operating a master trust scheme (MTS) without authorisation from the Pensions Regulator. The legislation has now received Royal Assent to become the Pension Schemes Act 2017.

The Act defines a MTS as an occupational pension scheme which:

(a) provides money purchase benefits,
(b) is used, or intended to be used, by two or more unconnected employers, and
(c) is not used, or intended to be used, only by employers which are connected with each other.

"Connected" is defined in the Companies Act 2006.

The Act contains a broad regulation-making power to enable the Government to extend or reduce the scope of the Act.

The definition of a MTS means that a SSAS could fall within the definition of a MTS if the SSAS has more than one employer and the employers are not "connected" within the meaning of the Companies Act definition. Informal discussions between members of the SIPP and SSAS industry and the Pensions Regulator have indicated that conventional SSASs are not the intended target of the Act and that the Pensions Regulator will be happy to recommend that they are exempted. There have not yet been any official announcements on this point.

The requirement for a MTS to be authorised is not yet in force. The Government intends to commence the master trust authorisation regime in full from October 2018. However, the requirement to notify the Regulator of specified "triggering events" is already in force. The triggering events provisions are retrospective to 20 October 2016 (the date the Bill was published) and a triggering event occurring after that date has to be notified to the Regulator within 7 days.

Brexit: White Paper and European Union (Withdrawal) Bill

The Government has published (on 30 March 2017) its Brexit White Paper and (on 13 July 2017) its European Union (Withdrawal) Bill. The Bill will repeal the European Communities Act 1972 on the day the UK leaves the EU. The Bill will convert EU law applicable in the UK on the day the UK leaves the EU into domestic law, so that "wherever practical and sensible", the same laws and rules will apply immediately before and immediately after departure.

As regards decisions by the Court of Justice of the European Union (CJEU), the policy is that CJEU decisions before exit day will be given the same status as UK Supreme Court decisions. The Supreme Court normally follows its own decisions, but does in rare cases depart from them "when it appears right to do so". The Bill provides that decisions by the CJEU after exit day will not be binding on the UK courts.

The White Paper acknowledges that a significant amount of EU law will not work without amendment once the UK has left the EU, eg it may be predicated on UK membership of an EU regime. The Bill contains a very broad power for the Government to make regulations to address this.

Cases

Judge suggests increase to Ombudsman compensation limits

In the case of Baugniet v Capita Employee Benefits Ltd, the judge recommended increasing to £1600 the upper limit for Pensions Ombudsman compensation awards for non-financial injustice. Current Ombudsman guidance states that in most cases, redress for non-financial injustice is likely to range from £500 to £1000. The figure of £1000 reflects a 1998 judgment which held that an award of over £1000 for non-financial loss should only be made in very exceptional circumstances.

The suggested increased figure of £1600 is based on the Bank of England's online inflation calculator, which calculates £1600 in 2017 as equivalent to £1000 in 1998.

The Pensions Ombudsman has not formally updated his guidance, but in the light of the Baugniet judgment, scheme providers and trustees should be aware of the possibility of awards of up to £1600 being made in respect of non-financial injustice in non-exceptional circumstances.

Trustees could not rely on exoneration clause re failure in relation to investment duties

The case of Dalriada Trustees Ltd v Mcauley involved a claim brought by a scheme's current trustee against two former trustees. The current trustee had been appointed, and the former trustees removed, at the instigation of the Pensions Regulator due to pensions liberation concerns. During the trusteeship of the former trustees, over £3 million pounds had been paid from the fund under "Gilt Option Agreements". The terms of these were complex, involving various offshore companies and payments to various different parties. The judge found that in order for the pension scheme merely to recoup the original sum invested, one of the companies involved would have needed to make returns in the order of 1300%.

Under the Pensions Act 1995, a trustee's liability to take care in making investment decisions cannot be excluded or restricted by an agreement.

The judge held that it was clear that the payments in respect of the Agreements were not investments that a trustee exercising proper skill and care could make. Factors taken into account by the judge were: the very large return which would be required before there would be any return to the scheme; the Agreements involved payments to offshore entities in respect of a highly speculative business; over 80% of the funds were to be paid to another entity under a consultancy agreement; there was no evidence that the trustees gave any consideration to diversifying their investments; and there was no evidence that the trustees had taken proper advice.

Applying the Pensions Act 1995, the judge held that an exoneration clause in the scheme's trust deed did not prevent the trustees from being personally liable for breaching their investment duties.

Trustee exclusion did not cover liability for misrepresentation

The case of First Tower Trustees Limited v CDS Superstores International Limited concerned the liability of a trustee companies of a unit trust. The trustee companies had entered into a commercial lease with a tenant. Before the lease was signed, the trustee companies had responded to enquiries to say that there were no environmental issues with the property. Subsequently, but still before the lease was signed, the trustees became aware that there were problems with asbestos at the property. However, they did not update their response in which they had previously said there were no environmental issues. The tenant claimed for damages for the unavailability of the property due to asbestos.

The lease said that the trustees contracted "in their capacity as trustees of the Barnsley Unit Trust and not otherwise". The judge agreed with the trustees' assertion that this meant that their liability under the contract was limited to the trust property. However, he held that the wording did not cover liability for pre-contractual misrepresentation.

This case illustrates the need for trustees to take care over the drafting of any wording intended to limit their liability as trustees.

Upper Tribunal rejects appeal in Commissioners for HMRC v Sippchoice Limited

In our November 2016 Update, we reported on the Sippchoice case in which the First-tier Tribunal 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. HMRC appealed to the Upper Tribunal arguing that the First-tier Tribunal had no applied the correct legal test in reaching its decision. The Upper Tribunal dismissed HMRC's appeal.

First-tier Tribunal upholds assessment to tax in Clark v Revenue & Customs

In our November 2016 Update we reported on the case of Clark v Revenue & Customs in which HMRC had levied an unauthorised payments charge and unauthorised payments surcharge. In that case, the member's fund had been transferred from a SIPP to what was purportedly a single member pension scheme, the "Second Scheme". Funds were subsequently transferred from the Second Scheme to a company referred to in the judgment as "CIM". HMRC's case was that the transfer from the Second Scheme to CIM was an unauthorised payment. However, during the course of argument, the Tribunal reached the conclusion that the Second Scheme was not as a matter of law a pension scheme at all, as the member's interest under the Second Scheme documentation was void for uncertainty. As the Second Scheme was not a pension scheme, it followed that an unauthorised payment had been made at the point when funds were transferred from the member's SIPP to the Second Scheme.

In the light of the decision reached by the Tribunal, the member argued that he was not liable for the tax charges, as HMRC's assessment had been issued in respect of the transfer from the Second Scheme (which the Tribunal had held was not legally a pension scheme at all) to CIM. HMRC had not issued any assessment in respect of the transfer from the SIPP to the Second Scheme. The Tribunal rejected this argument. Its key reasons were: the charges were of the same nature, being an unauthorised payments charge and an unauthorised payments surcharge, whichever transfer of funds had constituted the unauthorised payment; the charges arose in respect of the same tax year; and they arose from the same "factual matrix" as the transfer in relation to which HMRC had raised the assessment.

Pensions Ombudsman

Transfer refusal not maladministration despite incorrect legal interpretation

In his determination in the case of Mr N (PO-5395) the Ombudsman has held that a pension scheme administrator was not guilty of maladministration for refusing to make a transfer requested by a member based on its interpretation of the law at that time, notwithstanding that its interpretation had subsequently been held by the courts to be incorrect.

The member had made a transfer request in 2013, which the pension scheme administrator had refused due to pension liberation concerns. In 2015, the Pensions Ombudsman considered (in a different case) the issue of when a member had a statutory right to a transfer. The decision reached by the Ombudsman in that case meant that the Ombudsman would have agreed with the scheme administrator's refusal to make a transfer in Mr N's case. So had Mr N complained to the Ombudsman at that point, his complaint would have been rejected. Subsequently, in the case of Hughes v Royal London, the High Court held that the Ombudsman's decision was incorrect. So with the benefit of hindsight, Mr N's scheme should have made the transfer when it was requested in 2013. However, the Ombudsman did not uphold Mr N's complaint of maladministration, as at the time the scheme had refused to make the transfer, its approach had been in line with the Ombudsman's own approach.

Ombudsman upholds claim against SSAS independent trustee for failure to insure property

In his determination in the case of Mrs T (PO-8797) the Ombudsman has upheld a complaint against the independent trustee of a SSAS for its failure to make sure that a property held by the SSAS as its sole asset was insured. The SSAS had only one member, who was also a trustee. The member divorced and a pension sharing order was made providing that the SSAS funds should be transferred to the member's ex-wife. The independent trustee saw it as the member trustee's job to arrange insurance. It asked for evidence that insurance had been taken out, but did not follow up when this was not provided. The property was vandalised while uninsured and the member's ex-wife brought a complaint against the independent trustee for its failure to make sure the property was insured.

The Ombudsman held that a trustee, particularly a professional one, had a responsibility as part of its basic trustee duties to ensure scheme assets were protected in order that their value was safeguarded as much as reasonably practicable. The Ombudsman noted that after the vandalism the independent trustee had used its own funds to secure the property and that this indicated an understanding on the part of the independent trustee that it shared responsibility for the security of the property. The Ombudsman ordered the independent trustee to pay £500 to the member's ex-wife for the distress and inconvenience she had suffered.

Comment

Professional trustees should make sure that they obtain evidence from their co-trustees that property is insured. Whilst a member trustee is unlikely to be able to claim against a professional trustee where the member trustee himself bears at least some of the responsibility for a failure to insure, this case illustrates that if a professional trustee fails to secure scheme property, it may be held liable to a beneficiary who is not a trustee.

Complaint upheld against SIPP provider that refused to transfer bankrupt member's fund

In his determination in the case of Mr N (PO-10832): Ombudsman has ordered a SIPP provider to pay compensation to a member after it refused to action the member's transfer request for a year because the member's trustee in bankruptcy had requested that no transfer was made. The failure to make the transfer meant that the member's fund was held in cash for a much longer period than the member had intended and so missed out on investment returns. The member's trustee in bankruptcy had accepted that the member's fund did not form part of his estate for bankruptcy purposes, but had asked the SIPP provider not to make the transfer while it investigated whether the member had made excessive contributions. The SIPP provider had argued it had reason to be cautious because it was on notice that the member was a convicted fraudster who had previously submitted fraudulent transfer requests to the SIPP provider. The Ombudsman's determination says that the case has a "long and complex background" but the detail is not set out in the determination, making it difficult to draw firm conclusions as to the reasonableness or otherwise of the SIPP provider's approach.

FCA

FCA Business Plan 2017/18

On 18 April 2017 the FCA published its annual business plan giving details of the specific areas of work the FCA is prioritising for the next year. These include the sales processes and ongoing communications of firms making non-advised drawdown sales

FCA Retirement Outcomes Review – views sought on consumer protection measures for non-advised drawdown

On 12 July 2017 the FCA published the interim findings of its Retirement Outcomes Review, which looks at how the retirement income market is evolving since the pension freedoms were introduced in April 2015. The review focused in particular on consumers who do not take advice. The FCA is concerned that many such consumers do not shop around for drawdown products, and may need further help to manage their drawdown effectively. It is seeking views by 15 September 2017 on its proposed remedies, which are:

• additional protections for consumers who buy drawdown without advice
• measures to promote competition for consumers who buy drawdown without taking advice, including proposals to:
  • allow consumers to take some of their savings early without having to put the rest into a drawdown product
  • make it easier for consumers to compare and shop around for drawdown products
• "tools and services to help consumers make good choices".

FCA statement on national cyber attack

The FCA has advised firms to review the guidance on ransomware that has been issued by the National Cyber Security Centre and take appropriate action. It also asks firms that have been subject to an attack to contact Action Fraud and notify their regulator(s) through their usual route. Prior to the ransomware attack which affected the NHS in May, the FCA had published a speech by one of its executive directors at the Financial Information Security Network on the subject of cyber-security threats. The FCA has also published the attached infographic on effective cyber-security practice and responding to cyber-security incidents in the financial services sector.

For more information on what to do in the first 24 hours after a cyber-attack, see our e-bulletin.

FCA findings on review of lifestyling strategies

On 14 June 2017 the FCA published its findings from its review of lifestyling investment strategies. The review was prompted by the introduction of the pension freedoms in April 2015 meaning that lifestyling strategies based on the assumption that the member will purchase an annuity are no longer likely to be appropriate. The FCA is happy with the progress made by most firms in relation to lifestyling strategies for new business and post-2012 auto-enrolment contracts, but is concerned at the time it has taken some firms to review strategies for existing business written pre-2012, particularly legacy business written pre-2001.

FCA policy statement on applying conduct rules to "standard" non-executive directors

The FCA has published a policy statement on applying the rules in its Code of Conduct sourcebook to all "standard" non-executive directors within the scope of the senior managers and certification regime and the senior insurance managers regime (PS17/8). The new rules are part of the new accountability regimes introduced in March 2016 for banks and insurers.

FCA web page to clarify meaning of "durable medium"

The FCA has published a web page that aims to clarify the meaning of "durable medium" to help firms understand their obligations when using non-paper methods of communication. Various EU laws require a firm to provide information to a client in writing, either on paper or in another "durable medium".

The concept of "durable medium" is relevant to COBS 14.2.1 which covers (among other things): selling a variation of a personal pension scheme; selling a variation of a personal pension scheme which involves an election to make income withdrawals; and selling a variation of a personal pension scheme which involves the payment of one or more UFPLS. Where information has to be provided under COBS 14.2.1, the information must be provided in a durable medium (or via a website that meets specified conditions).

FCA consults on changes to pension transfer redress methodology

On 10 March 2017 the FCA published consultation proposals to change the methodology used to calculate the redress owed to individuals who were given unsuitable advice to transfer out of a defined benefit pension scheme. The consultation closed on 10 June 2017.

Miscellaneous

Pensions Dashboard

The ABI issued a press release on 17 May 2017 announcing that it will establish and lead an interim phase of the Pensions Dashboard project, the aim of which is to enable individuals to view details of all their pension pots online in a single place. The press release says that the Government’s objective is for the service to be available to consumers by 2019, and for it to be offered by a range of different organisations rather than by a single, central service.

Pensions Regulator brings first prosecution for failure to comply with information notice

In a press release issued on 5 April 2017, the Pensions Regulator announced its first prosecution for the offence of failing without reasonable excuse to provide documents to the Pensions Regulator when the Regulator has issued a notice under section 72 of the Pensions Act 2004 requiring documents to be provided to it. The case involved a firm of solicitors and its managing partner, who both pleaded guilty. The documents related to a property linked to an individual who was involved in a TPR pension scam investigation, which the Regulator finally managed to obtain by obtaining a search warrant and entering the premises of the firm concerned. .

This case underlines the importance of responding promptly to any information requests received from the Pensions Regulator.