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FOR MATTIOLI WOODS CLIENTS

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NOVEMBER 2016

Christmas at work Investment fraud Annual allowance New rules

THE DOG ATE MYauto-enrolment application!

Workplace pensions

Maternity leave

also in this issue...

Written prior to November Autumn statement

The Pensions Regulator has estimated that there are over one million employers due to stage between now and 2018, and concern is that smaller employers are still in the dark regarding their need to comply.Karena Woodall, Consultant

Founded in 1881, Swindon Town Football Club has a long history. The current League One football team has been in administration twice and in 1990 was demoted by the Football League (as it was then) after several breaches of the rules following illegal payments to players.

In April 2016, Swindon Town became the poster company for how not to avoid your auto enrolment duties, receiving fines of £22,900 from the Pensions Regulator (tPR) after it failed to put eligible workers into a pension scheme or comply with other workplace pension duties. Just as the Football League had penalised the club 26 years earlier for 36 breaches of the rules, tPR red carded the football team, electing to move from a ‘focus of remedial action to one of sanctions and redress’, with a clear view and timeline dating back to July 2014 of infringements caused by the company.

With Swindon Town, tPR sent a clear message that deliberate non-compliance would not be tolerated, hoping that employers would learn lessons from this action. They urged employers not to ignore their duties and reminded them that help was available, if needed.

This was not an empty threat. In October 2016, tPR’s quarterly compliance and enforcement bulletin for the period 1 July 2016 – 30 September 2016, showed that they were not afraid to caution employers and fine those who failed to heed their warnings.

Most employers are successfully navigating their auto-enrolment requirements, and those that struggle often find a compliance notice is enough to steer them back on track. A compliance notice is used to remedy a contravention of one or more auto enrolment employer duties. In the period to June 2016, 3,392 notices were issued, bringing the overall total to 11,099 since 2012. However, tPR has continued to flex its muscles and, in the last quarter to September 2016, an additional 15,073 were issued bringing the overall total of compliance notices to 26,040.

In this last quarter, tPR also doubled the amount of fixed penalty notices to employers, issuing 3,728 to bring the total issued since 2012 to 6,779.

Auto-enrolment has been in play since 2012 and tPR

has highlighted that stating illness, being short staffed or confusion are not reasonable excuses to those employers who contested their fines clarifying that whilst ‘reasonable excuse’ is used by HMRC for appeals against tax penalties, these regimes are separate: ‘if you are too unwell to complete your AE duties, you’ll need to find someone else who can’.

When compliance notices and fixed penalties fail to work, tPR can look to an escalating penalty notice (ESN), which can result in a fine of between £50 and £10,000 a day. However, fewer than 5% of compliance notices progress to an ESN. The Pensions Regulator finds this low percentage encouraging believing that it demonstrates that their ‘approach of educating and enabling before enforcing is both effective and proportionate’. Of the total of 741 ESNs issued since 2012, 576 were issued in the last quarter, a clear warning to employers that tPR is not backing down.

The Pensions Regulator has estimated that there are over one million employers due to stage between now and 2018, and concern is that smaller employers are still in the dark regarding their need to comply.

The Pensions Regulator is clear ‘it doesn’t matter how many staff you employ or how low your pension contributions are, the law still applies to you and you need to meet your duties so your staff don’t miss out’.

Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. The responsibility for complying rests with the employer.

The Pensions Regulator, along with any additional provider and adviser, will work with employers who haven’t understood their duties or been able to comply to ensure they become compliant. But if an employer has chosen to ignore their duties, tPR will use their powers, where necessary, to ensure compliance.

Putting your head in the sand will not work. If you have not yet staged, you need to clarify your staging date and take action now, because using the dog as a last-minute excuse is not going to wash with tPR!

THE DOG ATE MYauto-enrolment application!

2 MANAGING EMPLOYEE BENEFITS - ISSUE 6

FEATURE FEATUREPENSIONSFINANCIAL EDUCATIONLIFE TAXESPENSIONS

Auto-enrolment ChristmastimeNew rules Investment fraud

Maternity regulations

Annual allowance

Overseas pensions

WWW.MATTIOLIWOODS.COM 3

Your employee is now on maternity leave, but how far does your responsibility extend during this time? John O’Sullivan, Employee Benefits Consultant

The card has been signed, there has been an office collection and a gift purchased. Your employee is now on maternity leave, but how far does the employer responsibility extend during this time?

The facts:

• The Maternity and Parental Leave etc. Regulations 1999 and the Paternity and Adoption Leave (Amendment) Regulations 2014 confirm that employers must provide pension contributions during any period of paid maternity leave (statutory or contractual). However, it makes it lawful for an employer not to maintain an employee’s pension contributions in respect of periods of unpaid maternity leave.

• Currently, maternity leave is for 52 weeks, 39 weeks of which is paid. Employers are therefore not obliged to continue making pension contributions during unpaid maternity leave (i.e. the last 13 weeks of the maternity leave period).

• If an employee takes parental leave, they should remain a member of the staff pension scheme, and both the member and the employer will continue to make contributions, unless the member decides to stop contributing. In this case, the employer can also stop their contributions and the member will be treated as having left the scheme.

But what about salary sacrifice?

Pension salary sacrifice arrangements are essentially the same as other salary sacrifice arrangements in all respects,

save for a debate about the position during unpaid maternity leave. Most legal opinion believes that HMRC guidance on salary sacrifice indicates that HMRC considers pension contributions to be a ‘non-cash benefit’ for maternity leave purposes, as are childcare vouchers.

Employer pension contributions should continue during any paid period of maternity leave at the same rate as before leave, based on the employee’s actual salary. Any matching employee’s pension contribution only needs to be based on the pay they are receiving at the time (i.e. SMP).

However, ‘normal’ under a sacrifice arrangement may be the total pension contribution, i.e. if an employer contribution is 5% and the employee’s 3% into a DC scheme. The employee makes their contribution by salary sacrifice, making the employer’s normal contribution 8%. As a salary sacrifice arrangement is a contractual change, the employer is required to continue to contribute 8% as if the employee were in receipt of full pay.

Employees in receipt of statutory maternity/paternity/adoption pay cannot have a contribution deducted as statutory payments are protected earnings. As such, the amount cannot be recovered from the employee, so the employer must fund the full contractual employer pension contribution.

An employee will need to take their own legal advice. Employers with salary sacrifice arrangements may need to consider placing caps on sacrifice to ensure that the employer doesn’t end up holding the baby!

HOLDING THE BABY

Employer Employee Note

Contributions are based on the member’s pensionable earnings before the employee started

parental leave.

If you match the employee’s contributions, you must continue to match the same level of

contributions the employee was paying before the parental leave started.

If an employee takes a period of unpaid leave after paid parental leave, you can cease contributing, unless the employee’s contract of employment

states otherwise.

Can continue to pay contributions into the scheme whilst on paid

parental leave.

Employee contributions are based on actual earnings during the parental

leave.

If an employee takes a period of unpaid leave after paid parental

leave, the employee does not need to continue contributing during the

period of unpaid leave.

Both employer and employee may be able to pay extra contributions

(depending on the scheme’s rules) when the employee returns to work.

Group life and income protection benefits can be maintained during

periods of unpaid parental/maternity leave.

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Overseas pensions

How will my pension be paid if I retire overseas?Saira Chambers, Senior Employee Benefits Consultant

Following the June EU referendum, many employees (whether they have worked in the UK before returning home to retire, or are simply UK residents who plan to emigrate or retire overseas) have raised this and many more questions regarding how UK pensions are treated when paid overseas.

Whilst we can answer questions based on the UK position, clients need to be mindful that once in payment, separate consideration will need to be given to the treatment of the income in the country of residence, as well as any additional country-specific tax considerations on the UK pension pot. Clients will need to look into this and seek the appropriate tax advice.

Q. Have the rules changed since the EU referendum?

A. At the time of writing, the position on paying UK pension benefits overseas is the same as it was prior to the EU referendum.

Q. What difference does residency status make?

A. An individual’s UK residence status affects whether they need to pay tax in the UK on foreign income.

Residents normally pay UK tax on all their income, whether it’s from the UK or abroad.

There are special rules for UK residents whose permanent domicile is overseas.

Non-residents only pay tax on their UK income.

Q. How do I work out residency status?

A. Residency status depends on many things, including the number of days spent in the UK during the tax year as well as other factors.

Q. What is the UK position when paying benefits to an individual with UK pension benefits who is no longer a UK resident?

A. All pensions paid from the UK are taxed as earned in the UK, and are therefore subject to income tax. However:

• The income can be paid anywhere

• Providers often need this to be paid in sterling to a sterling bank account

Q. But if an individual is non-resident, do they need to pay tax on pension income?

A. If an individual is no longer a UK resident, but looking to receive a UK pension, they will need to complete a P85 form. Once completed and issued to HM Revenue and Customs, the individual will be issued with a new tax coding of NT (no tax) and a copy needs to be sent to the pension provider.

Until the provider receives a copy of the NT code, they must pay the pension net of tax, and will use an emergency tax code. Individuals can then reclaim the tax paid from HM Revenue & Customs once the correct tax coding has been received.

Individuals who fail to complete the P85 may be contacted by HM Revenue & Customs as use of the emergency tax code will trigger the local tax office to obtain the information they need.

Q. Will pension freedoms and flexibility in pension payments still be available to an individual if they reside overseas?

A. If the pension provider offers flexibility within their contract, then as mentioned previously, income can be paid in any manner, anywhere. However, care must be taken as to how income, tax-free cash and indeed any remaining funds are treated in the country of residence, and individuals will need to take advice in their country of residence.

Q. Will the pension scheme provide translation services?

A. Most probably not! Not least as some English phrases would definitely be lost in translation!

DISTANT SHORES





Annual allowance

Overseas pensions

Employers have certain duties to ensure that all eligible employees are enrolled in a work place pension scheme at the appropriate time.Charles Goodman, Employee Benefits Consultant

6. A worker who is a member (partner) in a limited liability partnership and is not treated for income tax purposes as being employed by that limited liability partnership under section 863a of the Income Tax (Trading and other Income) Act 2005 (HM Revenue & Customs salaried members’ rules).

7. A worker where the employer has reasonable grounds to believe the worker is protected from tax charges on their pension savings under HM Revenue & Customs primary, enhanced, fixed or individual protection requirements.

Under these provisions, a worker may have:

• Primary protection

• Enhanced protection

• Fixed protection 2012 and 2014, or

• Individual protection 2014

This exception applies where an employer has reasonable grounds to believe that a worker has one of these protections from tax charges on their pension savings.

In the Pension Regulator’s view, ‘having reasonable grounds to believe’ means that the employer must actually believe the worker has the protection, and there must be evidence which would lead a reasonable person to believe this. This does make it an individual’s responsibility to notify and provide evidence of protection to an employer as well as checking that the employer is willing to apply the exception.

The lifetime allowance reduction to £1 million from April 2016 has seen the introduction of two new protections, fixed protection 2016 and individual protection 2016. The Department for Work and Pensions confirms that it will legislate to add the new protections created to the list of exceptions.

The additional exceptions give employers the opportunity to avoid additional administration for employees who are likely to opt out, especially company directors and those with protection; however, care will still be needed to ensure that an employer’s duty to their employees remains.

However, there are currently seven circumstances where the employer duties to enrol an eligible jobholder, non-eligible jobholder or entitled worker do not apply. In addition, with some of the exceptions, the employer can choose whether to apply them or not. This may be for ease of internal administration.

With many employers looking towards their first auto-enrolment window or approaching their first re-enrolment it is worth reminding employers of the exceptions to the rules, including those introduced in 2015 and more recently in April 2016.

1. A worker who has opted out or ceased active membership of a qualifying scheme in the previous 12 months.

2. A worker who has given notice or been given notice of the end of their employment.

3. A worker who meets the definition of a ‘qualifying person’ for the purposes of separate UK legislation on occupational pension schemes and cross border activities within the European Union.

4. A worker who has been paid a winding up lump sum payment whilst in the employment of the employer, and during the 12-month period that started on the date the payment was made, the worker:

a. Ceased employment with the employer after the payment was paid, and

b. Was subsequently re-employed by the same employer.

5. A worker who holds the office of a director of the employer. This exception covers anyone holding office as a director. This does not include a person who is a director in name only.

In the case of a company, it means a director formally appointed under the Companies Act 2006, and also anyone acting as a director in the sense of having a decision-making role in the corporate governance of the company even if they have not been properly appointed. In the case of corporate bodies other than companies, it means anyone holding an office of director created by the establishing legislation or Royal Charter.

EXCEPTIONS TO THE RULE





Annual allowance

Overseas pensions

It’s the bane of our lives receiving the outbound calls from providers of accident compensation, solar panel providers, and PPI tracing services. Not only are our home telephone lines targeted by these cold callers, but there has been a significant increase recently in mobile numbers being targeted too. Not wishing to be the bearer of bad tidings, but it appears that things are set to get even worse.

In a recent report published by the Financial Conduct Authority (FCA), it was revealed that the current low interest rate is playing a big part in driving the over 55 average investor to consider unfamiliar types of investment product, with 4 out of 10 people reporting a sharp rise in unsolicited investment calls, and cold calling is increasingly becoming the preferred method used by investment fraudsters.

Previous FCA research has shown that over 65s with savings in excess of £10,000 were three and a half times more likely to fall victim to investment scams compared with the wider population. With the new pension freedoms for over 55s now firmly in place, it seems inevitable that this fraudulent activity is set to increase dramatically, with unregulated firms selling unregulated products, predominantly linked to land development, fine wines and modern art.

Employers should be aware that many of those targeted are members of their pension schemes and that perhaps they have a duty of care to make our ‘baby boomers’ aware of the potential risk to their valuable future income. In direct response to this issue and to address the general lack of

Are your employees being targeted by investment fraudsters? Adrian Firth, Employee Benefits Wealth Consultant

RISE IN INVESTMENT FRAUD





Annual allowance

Overseas pensions

knowledge amongst employees of the changing times we find ourselves in, Mattioli Woods launched its financial education service in early 2016. Since launch, over 300 employees have attended courses sponsored by their employers, with nearly nine out of ten taking positive actions as a result of attending.

Whilst our services seeks to deliver tailored education to all employees from early career through to those imminently retiring, it is the pre-retirement seminars which are proving the most well attended. With one in five employees planning to access their pensions at age 55 whilst still in full time employment (therefore compounding potential shortfalls later in retirement), it’s become more important than ever to help employees understand pensions and their new freedoms.

The Pensions Regulator has provided a guide in order to protect people’s pensions including:• Being wary of cold calls and unsolicited texts or

emails. Scammers will often claim to be from a government-backed body such as Pensions Wise. These organisations will never phone or text you to offer a pension review.

• Checking the financial adviser is on the Financial Conduct Authority (FCA) approved register. Pension scammers often pose as financial advisers. They might not be authorised and might be a referral for a separate organisation.

• Check the FCA’s list of known scams. The FCA has confirmed that £1.2 billion is lost to investment scams in the UK each year, and experienced investors are often targeted. The FCA Scamsmart site recommends that individuals reject unsolicited calls and check any investment strategy against the FCA warning list advising that if it sounds too good to be true, it probably is.

• Do not be rushed into a decision. Scammers will often try to pressurise you with time-limited offers. Take time to make all the checks you need even if this means turning down the too-good-to-be-missed offer.

Most pension providers, including Mattioli Woods, will have internal processes to deal with unusual and nonstandard investment strategies. However, as indicated by the FCA, if it looks too good to be true, it probably is.

Help us to help the Pensions Regulator and the FCA protect investors against pension scammers.

THE ULTIMATE GUIDE...


payment of an AA charge. Whilst in a defined contribution scheme the fund value will be reduced accordingly, for defined benefits schemes there is no fixed way to adjust benefits to reflect the payment of the AA charge. However, the adjustments should be ‘just and reasonable having regard to normal actuarial practice’.

A scheme may refuse to apply Scheme Pays in certain circumstances, for example defined benefits (DB) schemes, DB schemes in the Pension Protection Fund assessment period and other occasions where it would not be in the interests of other members of the scheme to pay the AA charge.

The Registered Pension Schemes (Modification of Scheme Rules) Regulations 2011 provide that where an individual opts to use Scheme Pays (on either the mandatory or the voluntary agreement basis), there is an overriding modification applied to the scheme rules. This allows the scheme to make the subsequent adjustment to the member’s benefits once the tax charge has been paid.

Tapering and Money Purchase Annual Allowance

Individuals who are subject to the tapered AA or MPAA are not prevented from using mandatory scheme pays and can still do so if the pension input amount for the registered pension scheme for the tax year exceeds the general unreduced AA (currently £40,000) and their AA charge liability on a default chargeable amount basis (i.e. by reference to the AA) would have exceeded £2,000.

Therefore, even if the tax liability is more than £2,000, an individual subject to a reduced AA cannot use mandatory Scheme Pays unless the tax charge would have been at least £2,000 by reference to the standard AA. However, the operational service could still apply.

There is a deadline for applying for Scheme Pays, and the pension scheme must receive the request in writing, to pay the charge no later than 31 July in the year following the tax year in which the AA charge was incurred.

However, the deadline can be brought forward if an individual intends to take all of their benefits or will reach age 75 in the year in which they wish to make use of Scheme Pays. The individual then gives the request to pay Scheme Pays from the fund before taking benefits.

Whether or not Scheme Pays is used or not might ultimately depend on the ‘maths’ of the best route for each individual – or even just the ability to pay the taxman!

When it comes to pension plans, tax and tax charges can arise on a variety of occasions. However, when the annual allowance (AA) is exceeded and AA charges apply, an individual can ask for the scheme to pay.

However, there are conditions!

Where an individual has exceeded the standard AA of £40,000 and is subject to an AA charge of £2,000 as a result of exceeding the standard AA or more, they can either pay the AA charge or provide notice to the scheme administrator requesting that the scheme pay the AA charge – this is the mandatory service known as ‘Scheme Pays’.

The member can also request that the scheme pay only part of the overall AA charge (the charge still needs to be £2,000 or more).

An individual must be an active member of a registered pension scheme for all or part of the tax year in which pension savings exceed the AA for Scheme Pays to apply.

Where a person is a member of more than one scheme, they cannot elect for one pension scheme to pay the entire liability or elect how they divide the liability. The maximum amount the member can request under Scheme Pays is based on the amount of the pension savings which have exceeded the AA threshold in that scheme only.

The scheme and the individual become jointly liable for the charge. The pension scheme will pay the AA charge (with the member being liable for any shortfall in payment). HMRC must still be informed of the member’s liability via their self-assessment tax form.

Schemes may decide to go further than required and may provide an additional Scheme Pays facility for tax liabilities below £2,000 – an optional service! The options remain as above; however, the member retains liability for the charge.

It’s not all free though as once the AA charge has been paid by the scheme, there is a reduction in the member’s benefits to reflect the payment by the scheme of the tax liability.

Where adjustments to benefits are made following payment of the AA charge on either the mandatory or the optional basis of the Scheme Pays regime, it is the member’s benefits that must be reduced subsequently, and not those of dependants. Guaranteed minimum pensions may not be reduced.

It is for the scheme, not the member, to decide how to reduce the member’s benefits in the scheme following a

WHO PAYS THE PIPER?Tax is never something we want to pay, but invariably we end up being liable for tax at some point in our lives – wouldn’t it be lovely to have someone to pay the tax for you? Paul Jackson, Employee Benefits Consultant





Annual allowance

Overseas pensions

NO SNOW FOR THE ESKIMOS

A well used statement is that we spend more time with our work colleagues than we do with our own family. At Christmas, employers may feel the desire to show staff how much they are valued – but this brings its own complications.

When children are small and the numbers are few it becomes easy to decide what to get them for Christmas. As they get older and their numbers multiply, siblings arrive and cousins etc. the decision of what to buy becomes harder. You want to treat each child fairly and with the same thought and financial consideration, but what can you do that makes your present special but fair? It is a very similar situation when it comes to planning Christmas gifts for staff members.

Some of your staff members may not celebrate Christmas and some may have certain intolerances to food or alcohol, thus eliminating the standard hamper. The worst case scenario is that after all your efforts, employees think that no care or thought was put into the gift process thus alleviating the benefit of any goodwill you had hoped to create.

It is a difficult decision, but for companies looking to provide gift vouchers there is an exemption for retail vouchers valued at £50 and under, where no income tax or National Insurance will apply. But be aware that if the payment is over £50, the whole amount would be subject to tax.*

If Christmas really is not for you then we can always start planning for Easter. I am sure those Cadbury Creme Eggs will be in the shops soon!

*Vouchers that can be exchanged for cash count as earnings and so would be subject to tax and National Insurance.

It has been claimed that Eskimos have dozens, possibly hundreds of words for snow. There are many ways employers can show their appreciation to employees this Christmas too... Nigel Saunders, Employee Benefits Consultant

Issue 6 was produced in November 2016.

Mattioli Woods plc, MW House, 1 Penman Way, Grove Park, Enderby, Leicester, LE19 1SY. www.mattioliwoods.com

Authorised and regulated by the Financial Conduct Authority.

The articles herein represent the views of the author and are not intended as a personal recommendation to make an investment. Investments can go down as well as up in value and you could get back less than you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct

Authority does not regulate tax advice. Any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances.

01224 652 100 Aberdeen

01280 823 030 Buckingham

0141 375 7120 Glasgow

0116 240 8700 Leicester

020 7269 4729 London

0116 240 8700 Manchester

01638 564 230 Newmarket

01772 555 073 Preston

01675 444 600 Solihull




Annual allowance

Overseas pensions

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