SIPP and SSAS Update

Pensions Ombudsman and Financial Ombudsman Service Memorandum of Understanding re jurisdiction

On 1 December 2017 the Pensions Ombudsman (PO) and Financial Ombudsman Service (FOS) issued a revised Memorandum of Understanding (MOU) dealing with the handling of complaints by the two ombudsman services in cases where there is a potential overlap of jurisdiction. A key area of potential overlap is where a complaint relates to the administration of a personal pension scheme.

The MOU says that if it becomes apparent that a complaint made by one ombudsman is more suitable to be dealt with by another ombudsman, it will, with the complainant's consent, refer the complaint to the other ombudsman. Matters which may be relevant to a decision to refer to a case to the other ombudsman where there is an overlap of jurisdiction include:

  • where the amount of potential redress would exceed the award limit of one ombudsman but not the other. (There is no upper limit on PO financial awards, but the maximum legally binding award the FOS can make is £150,000 plus interest);
  • the complaint is outside the time limits of one ombudsman but not the other; and
  • the complainant has made connected complaints about the activities of two parties where only one ombudsman covers both parties and it would be more suitable for the complaints to be dealt with together.

As mentioned in our report on the Berkeley Burke case below, the question of whether a complaint is dealt with by the PO or FOS can be particularly critical if it relates to whether a SIPP administrator has any liability for investment choices made by the member, as FOS has held the administrator liable and the PO has held the administrator not liable in cases involving very similar facts. The MOU does not address this issue.


Court increases level of Pensions Ombudsman award for maladministration

In the case of Smith v Sheffield Teaching Hospitals NHS Foundation Trust, the court increased the level of a Pensions Ombudsman award for maladministration. The High Court judge held that the Deputy Pensions Ombudsman had erred in law in making a maladministration award of £500 (the bottom end of the scale for such awards) and awarded £2750 instead. Key factors were: (a) the number of occasions on which misleading information had been provided to the member and the length of the period in which misleading information had been provided (6 years immediately prior to the member's retirement); and (b) the ease with which the correct position could have been established (ie simply by referring to the scheme rules). For more information, click here.

Judicial review application against Financial Ombudsman Service likely in Berkeley Burke case

Following a recent court judgment in the case of Berkeley Burke SIPP Administration LLP v Wayne Charlton and Financial Ombudsman Service Ltd, it now appears likely that the decision of the Financial Ombudsman Service (FOS) to uphold a complaint against SIPP administrator Berkeley Burke is likely to be subject to a court challenge via judicial review proceedings. The case has potentially significant ramifications for the SIPP industry generally because it concerns the question of the extent to which a SIPP administrator is responsible for investment choices made by its members. In the Berkeley Burke case, FOS upheld a complaint against Berkeley Burke by a member who sustained losses after investing in an unregulated investment. The case is particularly controversial given that the Pensions Ombudsman has dismissed a complaint on very similar facts.

The judicial review proceedings had been stayed pending proceedings to decide whether the matter should be dealt with via an alternative type of proceedings used for challenging awards in arbitration cases. However, the judge held that the FOS decision did not constitute an arbitral award.

Failure to register charge meant loan to employer was unauthorised payment

In the case of Eden Consulting Services (Richmond) Ltd v Revenue and Customs Commissioners the court held that a loan from a pension scheme to its sponsoring employer was an unauthorised payment due to the scheme's failure to register the charge securing the loan.

The Finance Act 2004 allows a scheme to make a loan to its sponsoring employer provided certain conditions are satisfied. One condition is that the loan must be secured by a charge which takes priority over any other charge over the relevant assets. In this case the pension scheme made a loan to the sponsoring employer which was stated to be secured by a first charge against the chattels, furniture and telephone system installed at the employer's property. However, the charge was not registered at Companies House.

As a matter of company law, an unregistered charge over the company's assets is void in relation to a company's liquidator, administrator or creditors. HMRC sought to tax the loan as an unauthorised payment on the grounds that the failure to register a charge meant that the loan did not meet the requirements for an employer loan. The employer company argued that as long as there was no other charge over the assets concerned, the unregistered charge effectively did take priority over any other charge over the assets. The court rejected this argument holding that a clear purpose of the provision was to protect the pension scheme's assets and that it was implicit that the charge had to be effective priority for the payment "when priority is in point". As an unregistered charge would be void against a future liquidator or administrator of the company and against the company's creditors, this condition was not satisfied. The loan to the employer therefore gave rise to an unauthorised payment.


This case illustrates the potential pitfalls of pension scheme trustees entering into transactions without adequate understanding of the law. The relevant Finance Act 2004 provisions do not expressly refer to the need for the charge securing the loan to be registered at Companies House, but it would be obvious to anyone with knowledge of the law in this area that a failure to register would leave open the risk of other creditors taking priority, and that the clear policy intention of the provision is to ensure that the scheme as a secured creditor will have first priority over the charged assets at the point when the question of priority becomes important, whenever that may be.

Court rejects claim that fund manager fees should be exempt from VAT

In the case of United Biscuits (Pension Trustees) Limited v Commissioners for HMRC, the court has rejected a pension fund trustee's claim that pension fund management services provided by non-insurers are entitled to an exemption from VAT by reason of EU law. The trustee had argued that as a matter of EU law such services were insurance transactions and therefore attracted a mandatory exemption from VAT, but this argument was rejected. HMRC currently treats pension fund management services provided by insurance companies as VAT exempt, but is altering its practice from 1 April 2019 following the UK's exit from the EU. From that date, only pension schemes which fall within the definition of a "special investment fund" will benefit from a VAT exemption in respect of pension fund management services. Money purchase schemes may fall within the scope of this definition, but defined benefit schemes will not do so.


General Data Protection Regulation in force from 25 May 2018

As covered in our previous update, the General Data Protection Regulation (GDPR) comes into force on 25 May 2018 placing new duties on anyone whose activities require them to hold data about identifiable living individuals. 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.

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.

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).

We are holding a breakfast seminar on 31 January 2018 at our Edinburgh office on the implications of the GDPR for SIPPs and SSASs. For more detail, click here.

Consultation on draft Master Trust regulations

The Government's recently published consultation on draft regulations means that we now know more about the master trust authorisation regime due to be brought fully into force from 1 October 2018. From that date, existing master trust schemes (broadly, occupational pension schemes for unconnected employers providing money purchase benefits) will have 6 months to apply for authorisation from the Pensions Regulator. New master trust schemes will need to be authorised before they start operating. An unauthorised master trust will have to transfer its members to another scheme and wind up.

The wording of the Pension Schemes Act 2017 had raised concerns that a SSAS could be categorised as a master trust if it receives contributions from two or more employers that are not legally "connected" with one another, but the draft regulations contain an exemption specifically aimed at SSASs.

New de-registration powers for HMRC could catch SSASs

In our e-bulletin in September 2017, we highlighted that draft Finance Bill provisions would give HMRC very broad discretion to de-register a scheme if the scheme has a corporate sponsoring employer that has been dormant for a continuous period of at least a month in the one year period leading up to the de-registration decision. The provisions that were previously published in draft have now been included in a Finance Bill making its way through Parliament.

Legislation passed to reduce money purchase annual allowance

As expected, legislation has now been passed to reduce the money purchase annual allowance from £10,000 to £4,000 for the current tax year. The legislation also provides for an income tax exemption for up to £500 worth of employer-arranged pensions advice. The legislation for both these measures was due to have been enacted earlier, but was postponed due to the General Election.

Trustees who wish to pay an annual allowance charge on behalf of the member where there is no legal obligation to do so under the "scheme pays" provisions should check whether their scheme rules allow this, as a rule amendment will often be required in such circumstances.

HMRC consults on regulations to change Relief at Source deadlines

HMRC has consulted on draft regulations which will bring forward reporting deadlines relating to relief at source claims. The changes have been prompted by the introduction of a Scottish rate of income tax which will mean HMRC will need to tell scheme administrators the correct rate of income tax to apply to members' contributions, based on their residency status.

The regulations will bring forward the due date for the annual return of individual information and the annual claim to 5 July. They will also introduce a 30 day period for the reporting and repayment of excess relief claimed in an interim claim, with interest due on late repayment. The 30 day period begins when the pension scheme administrator first discovers the excessive payment.

The regulations will have effect from 6 April 2018 and, in relation to interim claims, for tax months ending on or after 5 April 2018.

Consultation on bulk transfer of DC pensions without member consent

The DWP has published a consultation response and draft regulations following its call for evidence on the law relating to bulk transfers of DC benefits between occupational pension schemes without member consent. Issues commonly raised by respondents to the consultation were that the current law, drafted with defined benefit schemes in mind, made little sense when applied to DC schemes. In response, the Government has decided to remove the requirement to obtain an actuarial certificate for a DC to DC transfer, and the requirement for the relevant schemes to be related through a common employer or financial transaction. Instead the transfer will either have to be to an authorised master trust or the trustees of the transferring scheme will have to obtain and consider written advice of a "suitably qualified professional" who is independent of the receiving scheme.

The Government plans to make the changes with effect from 6 April 2018.

HMRC publishes guidance on application of money laundering regulations to pension schemes

In our e-bulletin in July 2017, we reported on the fact that new money laundering regulations which came into force on 26 June 2017 impose new duties on the trustees of pension schemes. Since then HMRC has published guidance on the regulations. Key points are:

  • confirmation that, although not all schemes will be required to provide information to HMRC, HMRC does take the view that the record-keeping requirements under the regulations will generally apply to pension schemes;
  • confirmation that scheme administrator liability for an annual allowance charge, lifetime allowance charge and various other tax charges relating to a specific member benefits do not trigger an obligation to provide information to HMRC under the regulations. So for practical purposes, whether the trustees will be required to provide information to HMRC will normally depend on whether the trustees have incurred a stamp duty liability (eg as a result of holding shares or property directly) in the previous tax year;
  • if a scheme is required to provide information to HMRC, it will only be required to identify beneficiaries by class rather than by name if the number of named beneficiaries exceeds ten. (Although the examples given in the relevant section of the guidance only refer to occupational pension schemes, not personal pension schemes, the wording of the guidance leads us to believe that HMRC will intend the same principle to apply to personal pension schemes);
  • HMRC regards the "settlor" of an occupational pension scheme as being the original employer. If that employer has ceased to participate, HMRC is content with details of the original and current participating employers only rather than regarding as settlors all employers that have ever participated; and
  • where details of asset values have to be provided to HMRC, it is content to receive a good estimate rather than requiring a formal valuation. For occupational pension schemes, HMRC is content for information from the latest scheme accounts to be used, provided they provide a reasonably good estimate of the market value at the point of first registration with HMRC's trust registration service.

On 8 December, HMRC announced that for trustees needing to register with its new Trustee Registration Service (TRS) in order to provide information required under the regulations, the deadline has been put back from 31 January 2018 to 5 March 2018.

In correspondence with The Association of Corporate Trustees, HMRC has clarified its approach to some issues which have arisen in relation to the technicalities of the TRS, for example where it requires a NI number to be entered and, despite all reasonable efforts, the trustees have been unable to find out the relevant number. In some circumstances, HMRC will accept the submission of "dummy data", eg entering "AB123456A" as the NI number. It appears from the correspondence that it is only possible to record one corporate trustee per trust on the TRS, as HMRC advises trustees to write to them to notify them if the trust has more than one corporate trustee.

New tax legislation: offence of failure to prevent facilitation of tax evasion, and potential civil penalties for "enablers of defeated tax avoidance"

Two important pieces of general tax legislation have recently come into force.

Firstly, there is a new criminal offence for businesses (corporates and partnerships) of failing to prevent the facilitation by an employee or agent of another person's evasion of tax. This is a strict liability offence, but with an available defence of having reasonable procedures in place to prevent such facilitation. This came into force on 30 September 2017. Businesses should therefore make sure they have procedures in place that would give them a defence if their agent or employee were found to have facilitated another person's evasion of tax.

Separately, legislation took effect on 16 November 2017 which allows civil penalties to be imposed on "enablers of defeated tax avoidance". Whilst the definition of "enabler" is widely drafted (and targeted at professional advisers), the rules only apply to abusive tax avoidance arrangements, which should mean that only fairly aggressive tax planning is within its scope.


FCA consultation on extending senior managers regime

The FCA has consulted on extending the Senior Managers and Certification Regime (SM&CR) to all financial services firms. The new regime will essentially replace the Approved Persons Regime.

The FCA proposes three parts to the SM&CR:

  • Five Conduct Rules that will apply to all financial services staff at FCA authorised firms. This set of rules means that individuals must act with integrity, act with due care, skill and diligence, be open and cooperative with regulators, pay due regard to customer interests and treat them fairly, and observe proper standards of market conduct.
  • The responsibilities of Senior Managers will be clearly set out and, should something in their area of responsibility go wrong, they can be personally held to account. The Senior Managers will be approved by the FCA and appear on the FCA Register.
  • Under the Certification Regime, firms will certify individuals for their fitness, skill and propriety at least once a year, if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.

The consultation has now closed and the FCA intends to publish and bring the new rules into force in 2018.

FCA policy statement on reporting of retirement income data

In July 2017 the FCA published its Policy Statement PS17/16 setting out its final rules which require FCA-regulated providers of pensions, annuities and income drawdown to report new data items to the FCA. The FCA will collect data on how members are taking their benefits from pension schemes (eg drawdown, pension commencement lump sum, annuity purchase etc). The data is to be collected via two new returns, one of which first needs to be submitted within 45 business days of 20 September 2018 and one of which needs to be submitted within 45 business days of 31 March 2019.

FCA policy statement on standardising disclosure of transaction costs

On 20 September 2017 the FCA published its policy statement PS17/20 which sets out rules requiring asset managers to disclose transaction costs to trustees of DC pension schemes in a standardised way. The duty placed on asset managers is intended to ensure trustees can comply with their duty to report on transaction costs as far as they are able. The rules came into force on 3 January 2018.

FCA Policy Statement on advice/guidance distinction and insistent clients

On 8 December 2017 the FCA published its Policy Statement PS17/25, reporting on the main issues arising from its Consultation Paper 17/28 Financial Advice Market Review Implementation Part II and publishing the final rules. The background to the Policy Statement is that the law is being amended from 3 January 2018 as regards the distinction between "advice" and "guidance" provided by an authorised firm. From then, most FCA authorised firms will not be treated as advising on investments unless they provide a personal recommendation. The Policy Statement sets out changes to the FCA's rules that are necessary to reflect this change. The FCA intends to publish new guidance on personal recommendations early in 2018.

The FCA is also introducing new guidance on dealing with an "insistent client", ie a client who has received a personal recommendation, but chooses to do something other than follow that recommendation.

Pensions Ombudsman

Scheme ordered to re-take death benefits decision after failure to consider potential beneficiaries

In the case of Mr Y (PO-17599), the Deputy Pensions Ombudsman (DPO) has ordered a scheme to re-take its decision regarding the distribution of a lump sum death benefit where the lump sum had been paid to the member's estate without considering payment to various potential beneficiaries. The case illustrates the importance of genuinely exercising discretion rather than sticking rigidly to fixed principles, and of considering potential beneficiaries regardless of whether the individuals in question have put themselves forward as such. For more information, click here.

Pensions Ombudsman upholds complaint where transfer made to scheme that was no longer a QROPS

In his determination in the case of Mrs N (PO-9935) the Pensions Ombudsman has ordered a scheme to compensate a member for the tax charges incurred in consequence of a transfer to an overseas scheme being an unauthorised payment. A transfer to an overseas scheme will be an unauthorised payment and incur penal tax charges unless the receiving scheme is a "qualifying recognised overseas pension scheme" (QROPS). In Mrs N's case, the receiving scheme had been on HMRC's QROPS list, but had already been removed before the transfer request was made. The transferring scheme had a policy that it would not make overseas transfers to schemes that were not on the QROPS list. The transferring scheme's administrators had checked the QROPS list before making the transfer, but had apparently mistaken a scheme with a similar name for the receiving scheme and gone ahead with the transfer.

This case underlines the importance of making proper checks before making a transfer to an overseas scheme. Since the events giving rise to this case, HMRC has changed the name of its list to the "ROPS" (Recognised Overseas Pension Schemes) list. Even where a scheme appears on the list, it may not necessarily be a qualifying recognised overseas pension scheme, so schemes need to make sure they make appropriate checks.

Ombudsman upholds complaint where administrator fails to comply with the higher standard for anti-pension scam duties

In his determination in Mr N (PO-8048) the Pensions Ombudsman has held that the administrator of a transferring scheme committed maladministration by failing to carry out appropriate checks and failing to issue the Regulator's 'scorpion' leaflets. The trustee of the receiving scheme had also committed maladministration by failing to respond to enquiries raised by the complainant or the office of the Pension Ombudsman. For more information, click here.

Ombudsman upholds provider's approach of adopting less stringent checks on advised transfer

In his determination in Mr E (PO-11025) the Pensions Ombudsman has rejected a member's complaint against a pension provider where the member alleged that a transfer was made without his consent and that his pension fund was subsequently misappropriated. Crucial to the Ombudsman's determination was that it had been reasonable for the provider of the transferring scheme to make less stringent checks on the grounds that it believed that the member was being advised by an IFA in relation to the transfer.

The Ombudsman himself describes the circumstances of the case as "disputed and complex". The Ombudsman considered it likely that the member's pension had been misappropriated following the transfer. There were a number of factors which could potentially have rung warning bells in relation to the receiving scheme. The pension provider had previously referred the administrator of the receiving scheme to the Serious Organised Crime Agency (SOCA) on a different transfer, though that transfer appears to have subsequently proceeded. The sponsoring employer of the receiving scheme was dormant, and the scheme had been registered within a few days of its establishment.

The member denied that he had authorised a transfer at all and claimed that his signature had been forged on a letter of authority supplied to the transferring scheme's provider, although the member did acknowledge having signed a "Client Enquiry Form" in relation to a potential transfer. Both he and the IFA denied that advice was provided in relation to the transfer in question.

The Ombudsman accepted that there were doubts as to the authenticity of the member's signature on the purported letter of authority which it had received from the member, but accepted that the provider had presented legitimate reasons why it did not undertake signature comparisons for such letters. The letter of authority had made reference to the member's correct address, NI number, date of birth and policy number. The Ombudsman concluded that the provider had acted reasonably in regarding the letter of authority as genuine and confirmation that the transfer was proceeding on an advised basis, giving the member rights against the IFA and under the regulatory regime in the event that the advice was not of the legally required standard. In such circumstances it had been reasonable for the provider not to scrutinise the transfer in more depth.


The precise details of this case are complex, but it does indicate that the Ombudsman accepts in principle that it is reasonable for a transferring scheme to carry out less stringent checks on the legitimacy of the receiving scheme if the transfer is proceeding on the basis of regulated financial advice. However, the case also highlights the potential for scammers to make fraudulent transfer applications, which may be hard to spot if the scammers have obtained detailed personal information from the member such as NI details and policy numbers. SIPP and SSAS providers should consider whether their procedures are sufficient to reduce the risk of fraud as far as reasonably possible.


Scottish rate of income tax

New rates of income tax for taxpayers resident in Scotland for tax year 2018/19 were announced on 14 December 2017. HMRC's Pension schemes newsletter 94 says HMRC "will be working closely with the Scottish Government and with pension providers, on the implications of that change for pension tax relief, and to clarify how the mechanisms for providing relief will operate in respect of Scottish pension savers". On 18 December 2017, HMRC published a "Pension schemes relief at source for Scottish Income Tax newsletter" detailing the state of play at that date.

HMRC U-turn on VAT

Without publicising the fact, HMRC has effectively performed a U-turn in relation to its position regarding VAT on pension scheme services, to a business as usual position. For more detail, see our e-bulletin.

Introduction of lifetime allowance look up service

In its Pension schemes newsletter 91, HMRC announced the launch of its online service allowing scheme administrators to look up whether a member enjoys any of the statutory protections against the lifetime allowance such as enhanced protection. To use the service, scheme administrators will need the member's protection notification number and the scheme administrator reference number.

HMRC Pensions digital service

In its Pension schemes newsletter 90, HMRC announced that it is planning to migrate existing pension schemes on to its new Pensions Online Digital Service by April 2018, a year earlier than previously announced. HMRC asks all pension scheme administrators to log on to Pension Schemes Online as soon as possible to check that their details are up-to-date. If an administrator has not logged on to the current online service since April 2105, HMRC may not have enough information to move it to the new service, meaning that the administrator will only be able to use the new service by registering as a new user from April 2018.

Pensions Regulator

New questions on scheme return

The Pensions Regulator has announced details of new questions it will be asking about scheme data as part of the annual scheme return. The first additional question will be, "When was the last data review?" and the second will be, "What is the scheme's data score?" The data score is the percentage of members for which the scheme has full and accurate data records. Both questions will be asked in relation to both "common data" (data which the Regulator expects all schemes to hold, such as member's date of birth, NI number etc) and "scheme specific data" (previously known as "conditional data"). "Scheme specific data" means required data that is specific to the scheme.

The scheme return also asks whether the scheme has a professional trustee. When answering this question, trustees should have regard to the Regulator's definition of professional trustee.


Occupational pension schemes may need to obtain legal entity identifier (LEI)

As a result of the recast Markets in Financial Instruments Directive (MiFID II) many occupational pension schemes now need a "legal entity identifier" (LEI) in order for the scheme's investment manager to execute trades on behalf of the scheme. A LEI is a unique globally recognised 20 character code that can be used to identify a party participating in a transaction. In the UK, the issuing authority for LEIs is the London Stock Exchange. A fee of £115 plus VAT is payable to obtain a LEI. The requirement was due to come into force on 3 January 2018. On 20 December 2017 the European Securities and Markets Authority announced a 6 month grace period, but that is subject to the investment manager obtaining from the client the necessary documentation to apply for an LEI on the client's behalf. The FCA says it still expects firms to make every effort to secure a client's LEI before trading on the client's behalf.

Trustees should make sure this issue has been addressed if applicable in relation to their scheme. It is our understanding that LEIs are not required for SIPPs.

ABI Guidance on vulnerable customers

The ABI has published guidance to help firms identify and support vulnerable customers in the long term savings market. The guidance recommends that firms: implement a vulnerability policy, if they do not already have one; provide regular staff training on vulnerability awareness; and continue to share good practice through the ABI.

Pensions Dashboard Project

It was announced at the PLSA Annual Conference in October 2017 that the DWP will be the government department responsible for taking forward the pensions dashboard project which is being developed by a team managed by the ABI and comprising a number of firms within the pensions industry. The aim of the project is to provide a means for any individual to view details of all his/her pension arrangements together. A prototype has been developed and the goal of those involved in the project is to bring the dashboard into operation in 2019.

Seminar on new immigration checks and their impact on financial services providers

We are holding a free client seminar to discuss the impact of new requirements on banks and building societies to conduct immigration status checks on existing customers and the wider implications for financial service providers. The seminar is at 2pm on 25 January at our London office. For more detail, click here.

Joint Money Laundering Steering Group publishes revised anti-money laundering guidance

On 21 December 2017, the Joint Money Laundering Steering Group, which is made up of leading financial services trade associations, published revised versions of its anti-money laundering and counter-terrorist financing guidance. The guidance categorises SIPPs and SSASs as normally falling within the "intermediate risk" category and sets out the customer due diligence standards that will normally be appropriate for products in the intermediate risk category.

Key Contacts

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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