Pension Bulletin 2016/36

Our viewpoint

Groundhog Day – VAT deadline extended again

It is now more than three years since the European Court of Justice case which forced HMRC to change the VAT treatment of pension scheme costs.  Since then we have had a series of announcements from HMRC about how the new system might work and a deadline for implementation that keeps getting put back.

Last October HMRC extended the transitional period in which the existing VAT treatment may be used to 31 December 2016 (see Pensions Bulletin 2015/46), but as HMRC will now be unable to finalise its new approach in time it has been extended until 31 December 2017 with the prospect of a further extension if necessary.


Given the time it is taking for HMRC to finalise its approach the latest extension of the deadline was necessary.  We still think that sponsors and trustees should take preliminary tax/legal advice (if they have not already) on how to optimise the employer’s VAT position, but it may be inadvisable to make changes until the definitive HMRC guidance arrives, which we hope is in time for us not to be reporting a further extension of the deadline this time next year!

LCP partner Jonathan Camfield’s blog provides further background.

Lifetime ISA enabling legislation off the blocks

There has been speculation as to whether or not the Lifetime ISA (see Pensions Bulletin 2016/11) would survive the change of Chancellor, but this is starting to look misplaced as this week the Savings (Government Contributions) Bill 2016-17 was presented to Parliament.

The Bill makes provision for, and in connection with, Government bonuses and other account features, for the Lifetime ISA and Help-to-Save accounts.

In relation to the Lifetime ISA the Bill sets out which withdrawals from a Lifetime ISA do not trigger a charge and provides arrangements for the payment of the charge payable on other withdrawals.  It also contains provisions in relation to HM Treasury and HMRC’s responsibilities and powers in relation to the Lifetime ISA, arrangements for tax relief of Government bonuses, information requirements and penalties and arrangements for appeals against various decisions taken by HMRC in relation to the Lifetime ISA.

Further detail on the requirements for Lifetime ISA providers, the Government bonus, account withdrawals and the operation of accounts will be set out in regulations to be made by HM Treasury.


There had been some uncertainty about whether the new Chancellor would proceed with a pet project of his predecessor.  That an enabling Bill has found Parliamentary time looks like a strong steer that the legislation governing Lifetime ISAs will be on the statute book as advertised next April.  Whether providers will be ready is another matter.

We hope to learn more soon, perhaps in the Autumn Statement.

LCP partner Ian Gamon has been blogging about Lifetime ISAs for readers who would like more background.

Finance Bill nears Royal Assent – with an LTA tweak added

This year’s Finance Bill completed its House of Commons stages this week and after being rubber-stamped by the House of Lords next week should be ready for Royal Assent.  Shortly before Report Stage in the Commons the Government moved a series of amendments, one of which is concerned with ensuring that, on a member’s death, the test as to how much lifetime allowance is used up reflects the standard lifetime allowance (SLTA) in force at the time of the member’s death rather than at the time of the benefit crystallisation event (BCE).

The amendment, at Clause 19, covers when uncrystallised funds are designated for dependants’ or nominees’ flexi-access drawdown (BCE5C) and when a beneficiary’s or dependant’s annuity is purchased (BCE5D).


Continual reductions in the SLTA (with the latest being a drop from £1.25m to £1.0m on 6 April 2016) have the potential to play havoc with the legislative requirements.  These latest adjustments are welcome and necessary.

When is an unauthorised payment authorised?

The First-Tier Tribunal (Tax) has ruled in two cases where HMRC has raised unauthorised payments charges in relation to payments from registered pension schemes.

In Browne v HMRC, HMRC had raised unauthorised payments charges and surcharges of £11,619.85 (being 55%% of a payment of £21,127 from Mr Browne’s Pearl Assurance Pension Plan) and £64,613.63 (being 55% of a £117,479.34 payment from Scottish Life).  In both cases the payments were made to bank accounts which were not pension scheme bank accounts.  The charges comprised unauthorised payment charges of 40% under section 208 of the Finance Act 2004 and unauthorised payment surcharges of 15% under section 209 of that Act.

Mr Browne worked as a financial adviser and was attempting to consolidate all his pension pots in his new employer’s scheme.  He arranged the transfers himself and, for reasons which are not entirely clear, the payments from Pearl and Scottish Life went into his bank accounts and did not find their way into registered pension schemes for three years.  For a transfer not to be an unauthorised payment under the Act it must be a “recognised transfer” as defined in section 169, being “a transfer of sums or assets held for the purposes of, or representing accrued rights under, a registered pension scheme so as to become held for the purposes of … another registered pension scheme …”.

HMRC raised the unauthorised payments charges because the payments were not “held for the purposes” of a registered pension scheme.  Mr Browne challenged this assessment on the basis that he had acted in good faith and the intention was always that the payment was intended to be made to a registered pension scheme.  The Tribunal rejected this argument. largely on the grounds that “the words ‘transfer of sums or assets … so as to become held for the purposes of, or to represent rights under … another registered pension scheme’ (our emphasis) in our view plainly indicate that the transfer cannot have an intermediate stage where the sums or assets are not held for the purposes of another registered pension scheme, even though eventually they come to be so held”.

Mr Browne was, however, successful in challenging the unauthorised payments surcharge.  The Tribunal observed that “… the purpose of the surcharge is to penalise unauthorised payments where they are made in order to frustrate the purposes of the pension scheme tax regime and abuse its tax reliefs and exemptions.  Where, as we consider is the case with these appeals, the unauthorised payments were not made for that reason … and, having considered all the circumstances ... it would not be just and reasonable for Mr Browne to be liable to the unauthorised payment surcharge …”.

The case of McGrevey v HMRC concerned payments from the Principal Civil Service Pension Scheme, which has a provision for members to take a refund of widows’ and orphans’ pensions.  There were two options offered, one of which, it was not disputed, constituted an unauthorised member payment.  Mr McGrevey took this option and then challenged the assessment on the grounds that Parliament should have included it in the list of authorised member payments.  The Tribunal rejected this argument and upheld HMRC’s assessment.


These cases are a useful reminder that the criteria for determining whether or not a payment is authorised or not are strict and when a payment falls on the wrong side of the line the courts will uphold HMRC’s assessments.

This is not all good news for HMRC though.  We now have an authority showing that it will not be “just and reasonable” to raise an unauthorised payments surcharge where no mischief is intended.

Secondary annuity market – FCA proposes extension to Pension Wise standards

The Financial Conduct Authority is consulting on changes to the standards it sets for Pension Wise’s designated guidance providers, mainly in order to reflect that from 6 April 2017 such providers will be able to deliver guidance to those who may wish to sell the income from their annuity.

Amongst other things, the revised standard sets out the type of knowledge expected of an individual in order that they can give guidance about selling the income from an annuity and the minimum content that should be covered in a guidance session.  It also gives examples of the type of information that designated guidance providers should collect from individuals during the session to inform the guidance they give to the individual or their contingent beneficiary.

Consultation closes on 4 October 2016 and the FCA intends to publish its final standards in December.


The proposals are pitched at a high level – just as with the current standards set for guidance sessions for consumers seeking to access their pension savings.  The designated guidance providers will need to add some meat if the sessions are to be worthwhile. 

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

Subscribe to receive our Pensions Bulletin and News Alerts