Finance (No.2) Bill

Submission to the Public Bill Committee for the Finance (No.2) Bill 2017-19 ("the Bill")

Written Evidence submitted by James D Jones-Tinsley FPMI APFS, Self-Invested Pensions Technical Specialist, for and on behalf of Barnett Waddingham LLP

Suggested Amendments to Schedule 3 of the Bill

1. Executive Summary

1.1 In this written evidence, we propose that amendments are made to the current draft wording in paragraph 1(4) of Schedule 3 of the Bill, because;

· The proposed grounds for the de-registration of occupational pension schemes by HMRC will go far beyond the envisaged "limited circumstances" in their current form;

· Scheme Administrators (of pension schemes) do not always have control over sponsoring employers becoming dormant (as Scheme Administrators are often independent entities, and not connected with the employer) and would not able to take action, such as winding up a scheme within once month of a company becoming dormant, should that prove necessary;

· In contrast, the perpetrators of ‘sham’ occupational pension schemes, which are the intended target of the draft legislation, are unlikely to care if the pension scheme is de-registered if they do not operate as Scheme Administrators or, if they do, may be able to wind up sponsoring employers that have been set up solely to establish the scheme, without ever having traded; and

· As a result, many legitimate schemes – mostly "small self-administered schemes" - will face the unnecessary risk and taxation consequences of de-registration by HMRC, unless the scope of paragraph 1(4) is appropriately narrowed to exclude bona fide pension schemes, and focus the enhanced HMRC powers, as introduced by the Bill, specifically on sham arrangements that the government’s ‘Pension Scams’ consultation sought to close.

2. About Barnett Waddingham LLP

2.1 Barnett Waddingham LLP is the UK’s largest independent firm of actuaries, administrators and consultants. We believe the proposed measures particularly impact taxpayers who are members of small self-administered schemes ("SSASs"). We have been involved in the SSAS marketplace since the Firm was founded in 1989, and we now have a team of around 50 SSAS specialists operating across five of our offices; namely, Amersham, Cheltenham, Glasgow, Leeds and Liverpool.

2.2 We act as a professional trustee to our SSASs and provide scheme administration services, including dealing with regulatory returns, as well as member and investment transactions. With around 2,200 SSASs, we have built up a significant amount of experience in dealing with these type of occupational pension schemes.

3. Background to our proposed amendments

3.1 In October 2017, the Lead Partner for our SSAS Practice Area (Andrew Roberts) responded, on behalf of Barnett Waddingham LLP, to the technical consultation that commenced with the issue of the "Pensions Tax Registration" draft legislation and associated Policy Paper, on 13 September 2017. The primary purpose of those representations was to ensure that the enacted legislation would work as intended, by setting out amendments to the draft legislation, prior to the Bill being laid before Parliament after the Autumn Budget on 22 November 2017. A copy of Andrew’s letter to Ms Samantha Skill at HM Revenue & Customs ("HMRC") is annexed to this written evidence to assist the members of the Public Bill Committee in its consideration.

3.2 When the Bill was introduced into Parliament on 1 December 2017, we were disappointed to note that none of our suggested amendments had been incorporated into Schedule 3 of the Bill. We are therefore submitting our requested amendments to Schedule 3 of the Bill, and the rationale underpinning them, for consideration by the members of the Public Bill Committee.

3.3 Given our principal concern that the application of the legislation, as currently drafted, would extend HMRC discretionary powers to de-register occupational pension schemes far beyond the envisaged "limited circumstances", we invited trustees of SSASs to write to their local Member of Parliament, highlighting the unintentional consequences of the draft legislation on legitimate occupational pension schemes. This initiative has solicited a response from Guy Opperman MP, the Minister for Pensions and Financial Inclusion, to Mike Freer MP, in which he states, (with reference to the Bill), "HM Revenue and Customs would only de-register a scheme where it is satisfied that the scheme is not being operated for the provision of legitimate retirement benefits."

3.4 We are further heartened with the current consultation in respect of the "Draft Occupational Pension Schemes (Master Trusts) Regulations 2018", in which it states that, "The Regulations will dis-apply the requirements for [the Master Trust] authorisation regime to Small Self-Administered Schemes (SSASs) that would otherwise fall within the definition of a Master Trust [in the Pension Schemes Act 2017]." We are concurrently responding to this consultation, to express our unequivocal support of this pragmatic approach; particularly as the majority of Schedule 3 of the Bill deals with the potential de-registration by HMRC of Master Trusts that are not authorised.

3.5 However, other parts of Schedule 3, as currently drafted, do not remove the risk of de-registration of bona fide SSAS’, or achieve the desired outcome espoused by Mr Opperman in 3.3 above. We are therefore proposing amendments to paragraph 1(4) of Schedule 3, in order that occupational pension schemes that satisfy a specific criteria, are rightly excluded from the risk of de-registration by HMRC, and ensure that the statement made by Mr Opperman above, is statutorily underpinned within the primary legislation itself.

4. Our suggested amendments

4.1 In our response to the government’s ‘Pension Scams’ consultation of December 2016, we offered our full support to the proposal to restrict the registration of new occupational pension schemes, to exclude those being set up by dormant companies. Accordingly, we propose that no amendments be made to the draft wording of Section 153(5)(h) of Part 4 of the Finance Act 2004 ("FA04"), as set out in paragraph 1(3) of Schedule 3 of the Bill, as that wording should operate as intended by policy.

4.2 Furthermore, we propose that no amendments be made to the draft wording of Section 153(5)(i) of FA04, as set out in paragraph 1(3) of Schedule 3 of the Bill, as we believe that it is proportionate to deny registration to unauthorised Master Trusts. We note that those schemes classified as Master Trust may now exclude the vast majority of SSASs though, as there is still some potential unnecessary exposure, we suggest a minor amendment, as noted in paragraph 4.8 below.

4.3 We do, however, propose that amendments are made to Section 158(1)(g) of FA04, as set out in paragraph 1(4) of Schedule 3 of the Bill. The legislation, as currently drafted, will expose significant numbers of legitimate SSAS’ to the unnecessary threat of de-registration and, as a result, is inconsistent with the statement, "HMRC may only withdraw registration from a pension scheme in limited circumstances, which are set out in statute". We are aware of some existing members who are taking steps to dissolve dormant companies, or transfer to self-invested person pensions, simply to mitigate this risk.

4.4 In its current form, Section 158(1)(g) provides HMRC with the opportunity to raise a tax charge against the Scheme Administrator of a SSAS, for actions that the Scheme Administrator is unable to control, (that is, a change in the trading status of the sponsoring employer and/or instigating the winding-up of a pension scheme).

4.5 What is required is a narrowing of the scope of Section 158(1)(g), so that the withdrawal of registration by HMRC will only apply in limited circumstances, and thereby achieve the objective opined by Mr Opperman in his aforementioned letter. The scope should therefore be narrowed to;

(a) Excluding those schemes where there has been an active (that is, trading) sponsoring employer for a continuous period of two years; and

(b) Excluding those schemes that have been registered for a continuous period of six complete tax years; and

(c) Including only those schemes that have all of its sponsoring employers dormant (as opposed to at least one dormant sponsoring employer); and

(d) Including only those schemes where all sponsoring employers have been dormant for a continuous period of two years.

4.6 The rationale underpinning the above elements of our recommended narrowing process can be found on pages 4 and 5 of Mr Roberts’ annexed letter.

4.7 We propose that the narrowing of the scope of Section 158(1)(g) be achieved by redrafting it, and then inserting an additional section into Section 158 of FA04 - namely, Section 158(1A) – as follows;

New draft of Section 158(1)(g) – amended wording in bold type;

"(g) the pension scheme is an occupational pension scheme, and for every sponsoring employer in relation to the scheme that is a body corporate, that sponsoring employer has been dormant during a continuous period of two years that falls within the period of three years ending with the day on which the decision is made, or"

Insert new Section 158(1A);

"(1A) Subsection (1)(g) does not apply –

(a) to a scheme that has been registered for a continued period of six complete tax years; or

(b) to a scheme that has a sponsoring employer that has been active during a continuous period of two years."

4.8 Finally, to assist with the disapplication of the Master Trust authorisation requirements to SSAS’, as outlined in part 3.4 above, we propose that Section 158(1)(h) of FA04 is amended to read;

"that the scheme is an unauthorised Master Trust scheme and has more than eleven members."

January 2018