Technical Bulletin - August 2015
In a world where change is the only constant, we help you keep on top of the developments in financial services regulation, legislation and environment.
Here’s what happened in August:
Financial Advice Market Review
The Treasury and the FCA have launched a joint Financial Advice Market Review (FAMR), which will examine how financial advice could work better for consumers.
The Review will:
- Examine the advice gap, especially for those who have less significant wealth;
- Make sure the regulatory and legislative environment allows and encourages firms to grow their business models to include affordable and accessible financial advice; and
- Consider ways to encourage people to seek financial advice.
It wants to come forward with a package of reforms that will help UK consumers make effective decisions about their finances, but also help establish and develop a broad-based market for the provision of financial advice to all consumers. Part of this is creating the right regulatory environment and making sure firms have the clarity they need to develop new business model solutions which could fill the advice gap.
It will report before the 2016 Budget.
We believe it’s important to help people understand what they are paying for in advice costs. It’s frustrating that despite the RDR, the Government still does almost nothing to promote the merits of financial advice. This needs to change to help consumers better understand the value of advice.
The biggest part of the review will be how to make advice accessible. The regulator needs to promote and encourage the use of online technology, especially as a medium for delivery of focused and simplified advice models, as well as clarifying the regulatory environment. This way we can make these models more accessible to a wider market.
Treasury closes public sector loophole
When Pension Freedoms were introduced in April 2015, the Government made it clear members of unfunded public sector schemes – such as the NHS and the Teachers’ scheme – were not allowed to transfer to defined contribution schemes to take advantage of the new reforms. However, a loophole meant it was still possible for these members to transfer to overseas defined contribution schemes, such as a qualifying recognised overseas scheme.
The Treasury has now laid regulations closing this loophole.
ROPS notification list
The HMRC has clarified the purpose of the List of Recognised Overseas Pension Schemes Notifications as well as highlighting some important information for scheme administrators and members.
The list is usually published twice a month. HMRC emphasises that there is a difference between a ROPS and a QROPS. A pension scheme is a ROPS if it meets the requirements set out in legislation (the ROPS requirements). This is a factual test.
To be a QROPS the:
i) scheme must meet the ROPS requirements
ii) scheme manager must notify HM Revenue and Customs (HMRC) that the scheme meets the ROPS requirements and undertake to provide information (to HMRC, other pension schemes and individuals) and to notify HMRC if the scheme ever ceases to be a ROPS
The published list shows that the scheme manager has notified HMRC that it wishes to appear on the list, and has undertaken to provide information. But this is all it shows; it does not show that the scheme meets the ROPS requirements.
Instead, it’s the responsibility of the individual and the scheme administrator making the overseas transfer to check that the receiving scheme meets the requirements to be a QROPS. UK tax charges will arise if it does not – usually at 55% on the individual and 15% on the scheme administrator.
Lifetime allowance and the new protections
In Pension schemes newsletter 70, following the announcement that the lifetime allowance for pension savings will be reduced from £1.25 million to £1 million from 6 April 2016, HMRC explained that two new protection regimes will be introduced which will have the same conditions as the previous fixed and individual protection regimes for individuals who want to rely on them.
In Pension Schemes Newsletter 71, it says it aims to provide more detail around the new protection regimes in the next pension schemes newsletter, to be published around September. The legislation for these protection regimes is expected to be included in Finance Bill 2016, which is likely to be published in draft before the end of this year.
In the meantime HMRC suggests advisers and schemes should consider how to remind members that for the new ‘fixed protection’ they must have no benefit accrual after 6 April 2016, and for the new ‘individual protection’ they must have savings of at least £1m on 5 April 2016.
HMRC and Pension Freedoms
In Pension Schemes Newsletter 71 HMRC announced that in future it will publish, on a quarterly basis, information on the number of pension freedom flexibility payments made. It will start in Autumn 2015, and we expect to find out more about this next month.
In April 2014 the annual allowance was reduced to £40,000. Those individuals who have ‘contributed’ more than this amount in the tax year 2014/15 have to pay an annual allowance tax charge.
Scheme administrators will shortly be issuing annual allowance pension statements to all members who did contribute more than £40,000. These members must inform the HMRC of this through their self-assessment.
However, HMRC is considering how to adapt the current rules to help those individuals who are affected by the tapered annual allowance work out any annual allowance charge due, given that it is not expected that scheme administrators will know what any individual’s income is for any tax year.