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Adviser  >  Technical Central  >  Information & guidance  >  Monthly round-up  >  Technical round-up - July 2008

Technical round-up - July 2008

 Legislation

Finance Act 2008

The Finance Act received Royal Assent on 21 July 2008. The pensions legislation can be found in Part 4 of the Act and Schedules 28 and 29. The Act makes changes to:

•  Pre A-Day protection of scheme specific tax-free cash 
• additional authorised payments including changes to trivial lump sums
• inheriting tax-relieved pension savings
• benefit crystallisation event 3 - increasing a scheme pension
• investment-regulated pension schemes (occupational pension schemes only)
• employer contributions.

More information on the changes brought in by the Finance Act can be found in our Technical Central article -  Finance Act 2008.

The National Insurance Contributions Act

The National Insurance Contributions Bill has received Royal Assent. The Act introduced changes to the way that the State Second Pension is calculated from 2009.

The Pensions Act 2007 put in place legislation to reform the State Second Pension so that it would become a flat-rate top-up to the Basic State Pension by 2030. The National Insurance Act has brought forward this change and a decision has now been made to start these changes in 2009 when the upper accrual point will be established (£770 p.w.). The upper accrual point will be cash fixed from the point it is introduced.

More details can be found in our article - The State Second Pension Explained.

Contracting out – self invested personal pensions (SIPPS)

From 1 October 2008 legislation will allow SIPPS to hold protected rights. Schemes wishing to hold protected rights will need to hold a valid contracting-out certificate.

Schemes can apply for a contracting-out certificate before 1 October, the application should request an effective date of contracting-out of 1 October 2008. Applications should be made to HMRC using form APSS101.

Also from 1 October 2008 protected rights funds can be used to invested in the full range of investments available to other funds held in the SIPP, including commercial property.

The Pension Protection Fund (Entry Rules) Amendment Regulations 2008

The Pension Protection Fund (Entry Rules) Amendment Regulations were laid before Parliament on 11 July 2008. The Regulations make changes to the existing rules so that where an eligible scheme’s sponsoring employer is dissolved during a Pension Protection Fund (PPF) assessment period, that scheme remains an eligible scheme for PPF purposes and may transfer into the PPF if the necessary criteria are met.

In addition, the Regulations change the way the Entry Rules Regulations apply to segregated schemes so that each section of a segregated scheme can remain eligible to enter the PPF.

The Regulations came into force on 2 August 2008.

Guidance

Pension Schemes Online – updated user guide

HMRC has updated its user guide for the online service it provides for scheme administrators and practitioners. This guide is intended for pension scheme administrators and practitioners who will need to use the Pension Schemes Online Service. It provides information about the role of the scheme administrator, how to access and use the Online Service, and explains what reports and returns need to be filed online.

HMRC Pensions Tax Simplification Newsletter no. 34

HMRC has published their latest Newsletter. This Newsletter is the last one to be called a 'Pensions Tax Simplification Newsletter', from now on they will be called ‘Pensions Schemes Services Newsletter’. 

The latest Newsletter covers:

• Code of practice 10 - the extension of the period during which individuals may seek information and advice on the interpretation of the last four Finance Acts
• scheme sanction charge/unauthorised payments
• registering a new death in service/group life assurance scheme.

Qualifying recognised overseas pension scheme

HMRC has updated their list of qualifying recognised overseas pension schemes.

Draft legislation

Change of definition of dependent

HMRC have published a draft Order - The Taxation of Pension Schemes (Transitional Provisions) (Amendment) Order 2008 which will amend the existing regulations and introduce further transitional provisions in relation to adult children who are dependants.

Schedule 28 to the Finance Act 2004 is to be modified so that pensions can be paid on the death of a member to financially dependent children who are over age 23 and have ceased full-time education or vocational training. The draft Order will therefore effectively extend the existing exemption which only applies up to age 23 or while the child is still in full-time education or vocational training.

Reductions of scheme pensions already in payment

Following representations from the pensions industry the Government intends to amend the existing rules for reductions in scheme pensions in schemes that are winding-up. 

One of the conditions of a scheme pension is that it should be payable for life and should not be reduced once the member has become entitled to it, apart from in certain defined circumstances. One of these circumstances is where all of the scheme pensions being paid are reduced at the same rate.

HM Revenue & Customs has been made aware that this may not cover all situations where a scheme is winding-up, as not all of the pensions being paid to members may reduce. This means that some members may find that not only has their scheme pension been reduced, because there are insufficient funds to maintain the existing level of pension, but that this reduction renders the future pension as unauthorised payments.

The Government intends to introduce legislation so that reductions to scheme pensions in these circumstances will not be treated as unauthorised payments. To prevent abuse this will only apply to schemes over a certain size. This will ensure those members who are already suffering a reduction in pension due to the financial problems of their schemes will not also face an adverse tax treatment.

It is intended that this change will be backdated to 6 April 2006.

Rates & Factors

The latest rates are as follow:

Retail Prices Index –  216.8 for June 2008
National Average Earnings Index – 135.2 for May 2008
GAD Interest Rates –  4.75% for August 2008.

Published  8 August 2008.

Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.