Transcript Report template

Understanding the
pensions landscape
Harley Richards
Manager Tax - KPMG
Agenda
 Historical position
 Present position
 Dream vs reality
 Product overview
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
Historical position
6 years ago:
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Defined benefit or defined contribution?
Corresponding approval for foreign schemes
Annual allowance - £215,000
Lifetime allowance - £1.5m
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Historical position - 2
 Perceived misuse: EFRBSs, extent of relief on contributions
 Financial issues: “black holes” (particularly for defined benefit schemes)
 Confusion over Labour Government’s proposals to address issues
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
Historical position - 3
“The Government will bring forward legislation as part of the consolidated
draft clauses planned for Finance Bill 2011, that will ensure that
intermediary vehicles, including employee benefit trusts (EBTs), and
funded employer-financed retirement benefit schemes (EFRBS), are no
more attractive that other forms of remuneration. This is to address the
use of these intermediary vehicles to disguise remuneration and avoid,
reduce or defer payment of tax; and to maintain the principle that there is a
limit on the level of tax-advantaged retirement saving the Government is
willing to support. The Government will continue to monitor the fiscal risk
on all other forms of EBTs and EFRBS.”
Estimated tax/ NIC yield - £4bn
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4
Historical position - 4
Changes to Pension schemes:
 Special annual allowance charge for individuals earning over £130k
annually – wef 22 April 2009
 Part 7A ITEPA 2003 – wef 9 December 2010
 Annual Allowance reduced to £50k (from £255k) - wef 6 April 2011
 Lifetime Allowance reduced to £1.5m (from £1.8m) – wef 6 April 2012
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
Historical position - 5
Special annual allowance charge
 Arises where “total adjusted pension input amount” exceeds £20k (or
£30k in certain circumstances)
 Tax at 20% is due on the difference between £20k (or £30k) and total
adjusted pension input amount
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Historical position - 6
Part 7A ITEPA 2003
 Aimed predominantly at “loans” made from trust based arrangements
(EBTs/ EFRBSs)
 Introduces the concept of “earmarking” – potentially problematic for
personal pension schemes, HMRC require benefits to be “genuinely
separate and pooled”
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Historical position - 7
Annual Allowance reduction - concessions
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“Higher” than expected
Carry forward of previous 3 years relief (overpay in 2011/12?)
Death / ill health
Does not cover redundancy or large pay increases
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
Historical position - 8
Lifetime Allowance reduction – concessions
 Legislation to protect existing benefits
 Pension scheme can pay for large tax charges but not commercially
attractive
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
9
Present position
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100,000 – 200,000 UK taxpayers adversely impacted by changes
Uncertainty over bespoke arrangements
Confusion over funds currently held in EFRBSs
Competition from overseas for pension funds
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
Dream pension scheme
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UK Corporation Tax deduction
Flexibility of investment
Inheritance Tax freedom
No lifetime/ annual allowance caps
No compulsory annuity purchase
Loan facility
Tax free lump sums
No tax on capital growth
Benefits treated as pension
Early retirement date
Investment security
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
Dream pension scheme - reality
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How well is a jurisdiction regulated?
Is the tax free cash the main issue?
Is taxation on income the main issue?
Does the client want to take a loan from the fund?
Does the client live, or intend to live in an EU country?
Does the client own UK residential property outside his scheme?
Is IHT planning the main driver?
One size does not fit all
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
12
Product overview
Qualifying Recognised Overseas Pension Scheme (“QROPS”)
 First appeared in 2006, driven largely by EU requirements to ensure
pension portability
 QROPS is for the TRANSFER of UK pension benefits on which UK tax
relief has been given
 Scheme administrators must apply to HMRC for ‘recognition’ and if
successful will go onto the HMRC list and are given a QROPS number
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
13
Product overview - 2
QROPS (continued)
To obtain recognition the Scheme Administrator must make a number of
declarations including:
 At least 70% of the fund must be to provide a pension for life which may
be taxed
 Report any significant actions to HMRC in first 5 tax years out of UK tax
system
 The nature of the jurisdiction in which the scheme operates
Primary aim must be to provide a pension not to maximise tax free cash, so if
it looks like a pension and acts like a pension it is likely to be acceptable to
HMRC.
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
14
Product overview - 3
QROPS (continued)
Variations in jurisdiction:
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Tax free cash lump sum (25% - 100%)
Pension income (paid gross – age restrictions)
Loan provisions (prohibited – restricted)
Retirement age (fixed – ill health – trades)
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15
Product overview - 4
Qualifying Non UK Pension Scheme (“QNUPS”)
 Introduced February 2010 as an amendment to UK IHT law
 QNUPS share broadly similar criteria to QROPS except for:
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QNUPS is for CONTRIBUTIONS
QNUPS is not reportable to HMRC
No upper age limit for making contributions
 BUT: did HMRC really intend to facilitate the removal of significant UK
assets from IHT, particularly in the current environment?
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
16
Product overview - 5
International Retirement Benefit Scheme (“IRBS”)
 Retirement Benefit Structure which can be either a corporate structure or
a personal structure
 Flexibility of investment and retirement age
 No restrictions on contributions or fund size
 Manx schemes need to be approved by the IOM Pension Regulator,
Insurance and Pensions Authority (“IPA”)
 Attractive to employers who have used EFRBSs in the past
© 2011 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
17
Presenter’s contact details
Harley Richards
KPMG LLC
+44 (0) 1624 681000
[email protected]
www.kpmg.co.im
© KPMG LLC, an Isle of Man limited liability
company and a member firm of the KPMG network of
independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a
Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through
complexity” are registered trademarks or trademarks
of KPMG International Cooperative (“KPMG
International”).
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circumstances of any particular individual or entity. Although we endeavour to provide
accurate and timely information, there can be no guarantee that such information is accurate
as of the date it is received or that it will continue to be accurate in the future. No one should
act on such information without appropriate professional advice after a thorough
examination of the particular situation.