7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• APL proposes approach for VAT on professional fees
• Chancellor announces OBR forecast, Spending Review and Autumn Statement date
• DWP publishes response to FOI request on state pension and contracted-out adjustments
• House of Commons Library publishes briefing paper on armed forces pension reform, 1995-2005
• NAPF publishes third AGM Season Report
• Case report: Brackley v Capita Employee Benefits (Pensions Ombudsman)

APL proposes approach for VAT on professional fees

The recoverability of VAT on professional fees paid in respect of occupational pension schemes has been under scrutiny recently.

In the past, HMRC allowed employers to recover VAT on invoices for general administration fees for work commissioned by and delivered to the trustees of UK occupational pension schemes under Notice 700/17.  Following two CJEU cases, HMRC revised its original position on VAT and pension schemes (see our Alert for details).

In Revenue and Customs Brief 43 (2014): VAT on pension fund management costs (published in November 2014), HMRC set out its interpretation of the legal position.  HMRC’s view was that an employer could now recover input tax in relation to the management of its pension scheme, only if there is contemporaneous evidence that it:

• is the recipient of the supply
• is a party to the contract for those services, and
• has paid for them.

“Management”, in this context, covers only investment management and day-to-day administration.

A further brief, Revenue and Customs Brief 8 (2015): deduction of VAT on pension fund management costs (published on 26 March 2015) follows on from Brief 43 and outlines HMRC’s position on the use of tripartite contracts to evidence an employer’s entitlement to deduct VAT paid on services relating to the management of DB pension schemes. Given the unique nature of DB pension arrangements, HMRC accepts that tripartite contracts can be used to demonstrate that the employer is the recipient of a supply of DB pension fund management services.

A transitional period is running until 31 December 2015, during which businesses can continue to use the VAT treatment outlined in Notice 700/17 should they choose, if both employer and trustees agree the same treatment.

In relation to this issue, the Association of Pension Lawyers (APL) has been working on a potential solution which it has proposed to HMRC.

The APL’s approach would allow schemes to make a single amendment to their rules to meet HMRC’s requirements and still allow employers to recover VAT. The rule would clarify that services supplied in order to run the pension scheme are provided for the benefit of the sponsor, even though legally the scheme is set up as a trust.

Anna Rogers, chair of the APL, said that she “hoped that HMRC will look favourably on this pragmatic proposal, which has wide support from pensions industry bodies”. The APL’s proposal is supported by the Association of Consulting Actuaries, among others.

The APL is worried about the lack of clarity on recovering VAT on services to pension schemes. This lack of clarity leaves sponsoring employers facing extra VAT costs due to the huge difficulty for the industry of meeting HMRC’s tripartite contract requirements by the current 31 December 2015 deadline.

Anna Rogers continued: “If the principle of future VAT recovery is acceptable to HMRC, which it seems to be, we’d like to find an easier way than for 6000 DB schemes to have to renegotiate all their contracts with suppliers. Scheme resources are finite and it would be good to put everybody’s time and money to better use.”

The APL notes that there are still big issues for suppliers to resolve with the tripartite contract approach, including conflicts, professional rules and liability. Anna Rogers said: “To the extent that tripartite contracts are used, it will be a challenge to get them in place by the end of December when we are still awaiting fundamental guidance from HMRC.” The APL has suggested that HMRC extend the deadline into 2016 to allow more time for these issues to be resolved.

For further information and advice on this issue, please speak to your usual Sackers contact.

Chancellor announces OBR forecast, Spending Review and Autumn Statement date

The Chancellor of the Exchequer, George Osborne, announced on 9 September 2015 that there will be an Office for Budget Responsibility forecast, alongside the Spending Review on Wednesday 25 November 2015. The government will publish a joint Autumn Statement and Spending Review on this date.

DWP publishes response to FOI request on state pension and contracted-out adjustments

On 10 September 2015, the DWP published a response to a Freedom of Information request in relation to the average deduction to the new state pension that will be applied to individuals who have been contracted-out of the additional State Pension (S2P or SERPS).

The response explains that for people reaching State Pension age from 6 April 2016, the DWP will calculate a starting amount based on their National Insurance record up to and including the 2015/16 tax year. It will calculate what someone would have been entitled to under the old scheme rules and the new scheme rules, with the higher of these two amounts becoming the new State Pension starting amount.

The DWP’s response to the FOI request goes on to state that “nearly 90% of people reaching State Pension age in 2016/17 would have the full rate of the new State Pension, or more, if we include the amount of additional State Pension they were opted out of when contracted out of the additional State Pension”, and provides links to further information on the calculations.”

For more information on the impact of the abolition of DB contracting-out, please see our Alert: Abolition of DB contracting-out: Countdown to April 2016.

House of Commons Library publishes briefing paper on armed forces pension reform, 1995-2005

The House of Commons Library published a briefing note on 7 September 2015, examining the reform process that led to the introduction of the Armed Forces Pension Scheme 2005.

The paper looks at the history of armed forces pensions, and the review process that led up to the introduction of AFPS 05 (introduced in April 2005 for new entrants).

NAPF publishes third AGM Season Report

The NAPF has today (14 September 2015), published its third Annual General Meeting Season Report.

In the report, the NAPF notes that in general, this year has seen much more purposeful and effective engagement between companies and investors, but that there remain a number of exceptions. Three particular areas are highlighted:

• 12 companies within the FTSE 350 where shareholders have for a successive year expressed discontent with particular governance arrangements
• the top five  FTSE 100 and top ten FTSE 250 shareholder rebellions on executive pay and
• 17 companies in the FTSE 350 where re-election of individual directors drew shareholder dissent of more than 15%.

Case report: Brackley v Capita Employee Benefits (Pensions Ombudsman)

In this case, the PO concluded that the scheme administrators had valid reasons for delaying the payment of a transfer value. However, their failure to provide the member with reasons for the delay did constitute maladministration.

Please see the summary on our website for more details.