Tax Regime Changes - The Post Implementation Reality
As the end of the year approaches ever more rapidly, we are now a few months into the new tax restriction regime and it is fair to say that many trustee boards will be drowning amidst a sea of further pensions-related acronyms as a veritable alphabet soup of new terms such as PIAs (Pension Input Amounts), PIPs (Pensions Input Periods) and PSSs (Pensions Savings Statements) enter the lexicon of day to day administration.
Anecdotal evidence would suggest that a number of third party administrators are taking the viewpoint that they are awaiting contact by their schemes to discuss their requirements. In reality, it should be incumbent upon the administrator to liaise with their schemes to highlight the issues that they potentially face and discuss the way forward. Indeed, the prepared administrator will have already been in discussion with their schemes as the regulations were clarified during the course of the summer. If this is not the case, all parties could be in for a rude awakening in the not too distant future.
Although the regulations at first glance appeared to be relatively (and I use that word advisedly) straightforward, as schemes have investigated them in more detail and looked at how they are to be applied to their own arrangements, it has become apparent there are different layers of complexity that will have an impact on pension scheme administration now and in the future.
Those schemes closed to both new entrants and future accrual are finding they can still be affected by the new regulations, for example where a salary link has been maintained or where specified revaluation rates applicable to deferred benefits are in force. Even those selecting their benefits at retirement can be unwittingly detrimentally impacted, as schemes that allow variable or bridging pensions can find their pensioners hit by a tax charge as their benefits come into payment.
For members that elect the Scheme Pays option for any tax charges that apply, not only do schemes need to decide whether they will allow members to elect this option where the tax charge is below the statutory minimum of £2,000, but consideration also needs to be given as to how benefits are to be realised from the scheme and members will need to be educated about the resultant impact of this upon their benefits.
The administrator may not currently be notified of Additional Voluntary Contribution payments if these are sent direct to the providers by the human resources or payroll team. Pension schemes will need to decide how these will be notified to the administrator going forward, so that these can be incorporated into any impact calculations carried out. Similarly, administrators should have already liaised with their schemes to obtain instruction on the population potentially affected by the reduction in Annual Allowance and therefore requiring impact calculations. In the case of defined benefit arrangements, this is likely to require actuarial advice who may determine specific members or categories of members for whom calculations may be required.
Finally, there is the thorny issue of Pensions Savings Statements. These are a legislative requirement and will not necessarily just be a simple matter of adding a few additional details to the annual benefit statement. Indeed, if a scheme has not aligned its Pensions Input Period to its benefit statement date, it is possible that two separate communications to members could be required.
As can be seen from the above, the legislation is having a significant impact upon scheme administration going forward and it is therefore important that both scheme trustees and their administrators seek to proactively engage to discuss and agree the way forward on this subject as a matter of urgency. Failure to do so could lead to a number of nasty surprises for both the scheme and its members further down the line.