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Pensions Weekly Update – 22 July 2020

July 28, 2020
in Pension Rights
EU Court to Consider if an Irish Pension can be Exempted from a UK Bankruptcy Estate
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Here is our brief weekly summary of key legal and regulatory developments relevant to occupational pension schemes, which you might have missed, with links for further information.

  • As a result of the EU’s Fourth Money Laundering Directive, HMRC established the Trust Registration Service (TRS). Certain express trusts are required to register on the TRS and provide information about their beneficial owners. The EU’s Fifth Money Laundering Directive, which for the most part was implemented into UK law on 10 January 2020, imposed additional obligations requiring HMRC to extend the scope of the TRS. Following consultation, HMRC and the Treasury have confirmed that registered pension schemes, death benefit trusts set up for minors and life assurance schemes will be exempt from the registration requirements. Note, however, that unregistered pension schemes that are established under trust will continue to be required to register on the TRS.
  • HMRC has published a newsletter which covers tax issues arising in respect of previous and future lump sum payments where GMP equalisation adjustments are due to be paid. The newsletter covers the following tax issues where a lump sum has been paid in the past and further benefits have subsequently come to light as a consequence of GMP equalisation.
    • Where the previous lump sum had to extinguish the individual’s rights to benefits from the scheme in order to be an authorised payment, the previous payment will not cease to be authorised because it is subsequently established that the individual is entitled to extra benefits as a result of GMP equalisation, provided that the trustees could not have reasonably known about this extra entitlement at the time the lump sum was paid. This approach applies once the trustees have adopted their chosen GMP equalisation methodology.
    • Where the amount of the previous lump sum had to be lower than a specified limit in order to be an authorised payment, the general rule is that the lump sum will not stop being an authorised payment purely because an entitlement to further benefits resulting from GMP equalisation is subsequently identified.
    • One variation to the general rule above is where the previous payment was a trivial commutation lump sum. In these circumstances, HMRC considers that the value of the individual’s pension rights (in all registered pension arrangements) that is compared against the relevant trivial commutation limit should have included ‘equalised’ GMP rights. If it transpires that the limit is exceeded as a result of the extra GMP equalisation benefits being retrospectively included in this calculation, the previous lump sum payment will not meet the criteria to be a trivial commutation lump sum. We suggest you seek legal advice should this affect your scheme. The newsletter also comments on tax issues that can arise where the individual is entitled to additional benefits as a result of a GMP equalisation adjustment and the scheme intends to make a lump sum payment to the individual. In particular, how and when this extra entitlement can be paid as, or form part of, an authorised payment (for example, a pension commencement lump sum, a serious ill health lump sum, a trivial commutation lump sum or a small lump sum meeting the criteria in regulations 11 or 12 of the Registered Pension Schemes (Authorised Payments) Regulations 2009). HMRC explicitly states that the guidance in the newsletter does not apply to benefit adjustments that occur at the same time or as a result of GMP conversion. HMRC explains that the issues regarding GMP conversion are complex and “more detailed work needs to be done on the wider issues associated with that methodology”.
  • Readers who have been following the age discrimination cases concerning transitional arrangements that were adopted as part of reforms to the judicial and firefighters’ pension schemes (known as the McCloud and Sargeant cases), should note the publication of new consultations containing proposals to address the discrimination identified by the Court of Appeal in 2018. On 16 July, the Ministry of Justice published a consultation relevant to the judicial pension schemes, HM Treasury published a consultation relevant to certain public service pension schemes and the Ministry of Housing, Communities & Local Government issued a consultation for the LGPS.
  • The global coronavirus pandemic has had a seismic impact on our economy and lifestyles. Whilst some of the challenges posed by COVID-19 are expected to be short-lived, the longer-term implications of the crisis remain unclear. #PensionsTensions examines the key areas of pension tension, in each case exploring four aspects, assigning each a #PressureMeasure (the higher the score the greater the pressure being faced) and giving our view on where further reflection might lead to welcome change. In our first of four publications we focus on the member experience.
  • Don’t miss out on our Compensation and Benefits blogs. You can subscribe to receive them straight into your inbox. Our latest blog looks at a recent determination by The Pensions Ombudsman requiring a pension scheme to pay a full deferred pension to a claimant, despite the scheme having no record of the claimant’s benefits other than a guaranteed minimum pension.

— to www.lexology.com

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