A DAY – The WHEN, WHAT, WHO, HOW, & WHERE
Pension tax simplification, often simply referred to as “pension simplification” and taking effect from A-day on 6 April 2006 was a policy announced in 2004 by the Labour government to rationalise the British tax system as applied to pension schemes.
The aim was to reduce the complicated patchwork of legislation built up by successive administrations which were seen as acting as a barrier to the public when considering retirement planning. The government wanted to encourage retirement provision by simplifying the previous eight tax regimes into one single regime for all individual and occupational pensions.
What happened after A-day ?
The first thing to understand is that retrospective legislation is not desirable and would be open to challenge. In other words, many of the previous pension regimes provided better pension options than the new simplified rules. In these cases, investors were allowed to keep the previous benefits earned before 2006, with only their post 2006 benefits being automatically affected.
In practice, this means those with a foot on either side of 2006 can opt for the post 2006 on all their benefits if this suits them.
A word of caution
We would refer to A Day as adding a layer of simplification, not removing previous layers of complication. The interaction of the new rules and those with protected benefits – both pre 2006 and after – is extremely complex and the advice requirements are stiff.
Who are the players in pension transfers?
Outside the UK, any man and his dog can claim to be a pensions expert. Of course, there are genuine pension specialists outside the UK who have the necessary competencies to undertake pension transfer advice. The public need to undertake their own checks on their advisers to make sure they are regulated and qualified.
In the UK, this is straightforward. The FCA register shows the permissions of each firm.
Outside of the UK, advisers do not need any qualifications if they only undertake money purchase transfers or transfers with guaranteed benefits valued at lower than 30,000 GBP.
For transfers of schemes with guarantees (such as final salary schemes and policies with guaranteed annuity rates) that are valued over 30,000 GBP, then only a UK IFA with the correct FCA permissions can advise.
However, many money purchase schemes that do not require qualifications for transfer advice also straddle the pre 2006 and post 2006 rules. Namely, occupational money purchase schemes such as CIMPS/COMPS, Sec 32, EPP and SSASs. An unqualified adviser is unlikely to know all the rules and transfer advice may be inappropriate from such an individual.
To be safe, people should only take advice from holders of AF3 and G60 pension qualifications – always ask to see the adviser’s certificate.
Who are the regulators of pensions
In the UK, there are two:
Financial Conduct Authority – FCA – for personal pension schemes
The Pensions Regulator – TPR – for company pension schemes
Outside the UK, not all jurisdictions have pension regulators and, even if they do, if the pension is not a local pension it will not be of interest to the regulator (i.e. someone living in Spain with a pension in New Zealand, where the advice was given in Spain, is unlikely to get much help from the regulator in New Zealand).
Since A Day, the old HMRC approval system came to an end. Each scheme is now registered only and not approved in any way. Thousands have been registered, many of them being bona fide schemes, but also – because of the absence of due diligence by HMRC and tPR – many also being bogus and/or scams.
A Day opened the door to unethical salesmen and scammers to set up fraudulent schemes with the sole intention of stealing pension funds or milking victims for fees with ludicrously high commissions on toxic and illiquid investments. Often, the assets are high risk and toxic and the victims face a total loss. If the advice was unregulated, there is no recourse to the Statutory Compensation Scheme (FSCS).
Pensions were also targeted for liberation scams. Here the promoters provided “loans” to members from their own scheme or from an associated source, or just cashed in part or all of their pension prior to the age of 55. Many thousands now face financial ruin as HMRC will tax them 55% of the funds they took early (unauthorised payment tax). Despite the fact that the investors acted in good faith and were the victims of fraud as well as negligence on the part of HMRC, tPR and the ceding providers, HMRC will still make every effort to enforce the tax.
Meanwhile, the government sits idly by and does nothing. Pensions Minister Ros Altmann merely says that the victims are “fools”.