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Technical news update 26/02/2019

Technical Article

Update for 7 February 2019 to 20 February 2019.


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Taxation and trusts

Investment planning




Finance act 2019

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8)

Finance (No. 3) Bill 2017-19 received Royal Assent on 12 February as Finance Act 2019.

The Act includes measures announced in the October 2018 Budget and other changes which had been announced earlier.

New record for completion of self assessment tax returns

(AF1, AF2, JO3, RO3)

HMRC has reported that a total of 93.68% of Self Assessment tax returns – a new record – were completed by the 31 January 2019 deadline.

More than 11.5 million taxpayers were required to file their 2017/18 tax returns by 11.59pm on 31 January. While the majority filed on time, some 700,000 customers missed the deadline.

Interestingly, more than 700,000 returns were submitted on the 31 January, with the peak hour for filing between 4pm and 5pm when 60,000 filed. The number of taxpayers who filed online reached more than 10 million for the first time.

Anyone who has missed the deadline should contact HMRC as soon as possible especially where they can show they have a genuine excuse for late filing.

Source: HMRC Press Release dated 1 February 2019.

Updated guidance on property subject to the ATED

(AF2, JO3)

The annual tax on enveloped dwellings (ATED) is payable mainly by companies that own UK residential property valued at more than £500,000. The dwelling is said to be 'enveloped' because the ownership sits within a corporate wrapper or envelope. The ATED is charged in respect of chargeable periods running from 1 April to 31 March each year.

The Government has issued updated ATED guidance confirming the annual tax charges for the 2019/2020 tax year, as follows:

Property value

Annual tax 2016/2017

Annual tax 2017/2018

Annual tax 2018/2019

Annual tax 2019/2020

£500,000 to £1,000,000





£1,000,001 to £2,000,000





£2,000,001 to £5,000,000





£5,000,001 to £10,000,000





£10,000,001 to £20,000,000





£20,000,001 and over





Fixed revaluation dates

Note that there are fixed revaluation dates for all properties regardless of when the property was acquired. These are every 5 years after 1 April 2012, for example at 1 April 2017, 1 April 2022 and so on.

A valuation is necessary when the property is purchased, and this value will normally apply until the next fixed valuation date. This means that:

  • For those properties owned on or before 1 April 2012, they will have had an initial value at 1 April 2012 and the property will have had to be revalued on 1 April 2017;
  • For those properties acquired after 1 April 2012, but on or before 1 April 2017, they will have had an initial value at the date the property was acquired, and the property will have had to be revalued on 1 April 2017; 
  • For those properties acquired after 1 April 2017, but on or before 1 April 2022, they will have had an initial value at the date the property was acquired, and the property will have to be revalued on 1 April 2022. 

Note that the 1 April valuation applies for the following ATED year and the next four ATED years. So, for example, the 1 April 2017 valuation will apply for the 2018/2019 ATED year and all ATED years up to and including the 2022/2023 ATED year.

Other events that require a revaluation to be made:

  • Part disposals - if part of a property is disposed of (for example, a small parcel of land, or by granting a lease) the property must be revalued based on the property’s market value on the date of disposal. This valuation applies until a revaluation date of 1 April is reached. 
  • New builds or reconstructed properties - if a property is newly constructed or has been altered to become a new dwelling it should be valued on the earlier of the date: it was first occupied; it was treated as coming into existence for Council Tax or, in Northern Ireland, domestic rating purposes.

Note that it is only an acquisition of a right in or over land which is relevant and so millions could be spent developing a property without triggering a new valuation at that point. However, the expenditure could obviously result in the property moving into a higher ATED band on the next 1 April valuation (or earlier valuation event, such as a part disposal.)

ATED-related capital gains

If the company sells a property it may also have to pay ATED-related capital gains tax. However, the Government has confirmed that the ATED-related capital gains tax provisions will be abolished upon the introduction of extended rules for taxing gains on 'immoveable property'– for disposals on or after 1 April 2019.

Clearly, care needs to be taken to ensure that the correct valuation date is used when assessing if the ATED applies and, if so, at what level.

In addition, many buy-to-let investors will now be buying buy-to-let properties via companies in order to obtain full tax relief for interest paid on loans used to purchase the property. And there is a particular exemption which means that no tax charge will arise if the property is let on market terms to a person who is not connected with the company. 

However, if the value of the property for ATED returns purposes is £500,000 or more, an ATED tax return must be made and the exemption claimed. Otherwise penalties may be incurred.

Source: HMRC Guidance: Annual Tax on Enveloped Dwellings – dated 4 February 2019.

The Spring Statement

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8) 

The Spring Statement is now less than 3 weeks away, on 13 March. It is a fair bet that there will not be anything much new on the tax front: the Treasury underlined when announcing the date that "there will now only be one major fiscal event each year", ie. the Autumn Budget. Whether that worthy pledge might be overturned by fallout from the Brexit pantomime – or even whether Mr Hammond is still resident in 11 Downing Street – remains to be seen. In the meantime, the Institute for Fiscal Studies (IFS) has published a paper pondering what the (unspecified) Chancellor might say. 

The IFS focus is on the Spending Review, which is due from the Treasury sometime this year. Traditionally, Spending Reviews have covered a period of three years, which would mean that the 2019 review should set the spending plans for 2020/21, 2021/22 and 2022/23. However, the IFS believes that the uncertainties surrounding Brexit mean that the Chancellor may limit himself (or possibly herself) to a single year – 2020/21- "in order to leave more flexibility to respond to future developments". This would not be unprecedented as there was a single year review in 2013 for 2015/16, to run to the end of the fixed term parliament (remember them?).

Apart from the likely shortened review period, the IFS makes several other interesting observations:

  • The backdrop is almost a decade of spending cuts. On a like-for-like basis, spending by Government departments is over £40bn lower in 2018/19 than in 2009/10 and is the lowest share of national income since 2000/01. Total Government spending (38.2% of GDP) is roughly where it was in 2006/07. 
  • An uneven squeeze. Some areas of spending have been harder hit than others, eg the Department for International Development has enjoyed a 25% increase in its day-to-day budget between 2010/11 and 2019/20 (the final year of the last Spending Review), while the Department for Environment, Food and Rural Affairs and Ministry of Justice have each seen a reduction of around 40% (hence those probate fee increases…). 
  • The deficit has returned to pre-crisis levels, but total debt is still an issue. Public sector net borrowing fell to 2.0% in 2017/18, having peaked at around 10% in 2009/10. However, the surge of borrowing during the financial crisis still lingers on in the total debt figure, which is 50% of GDP higher than a decade ago. Total debt is set to fall only gradually over the next few years. 
  • An extra £20.5bn to the NHS by 2023/24. Add last Summer’s NHS pledge to other commitments already made on defence and aid, and more than half of day-to-day public service spending (£156bn in 2018/19) has already been largely set outside of the Spending Review. 
  • The total spend comes first. Before setting departmental budgets, the Chancellor must decide on the total ‘spending envelope’. Those pre-existing commitments mentioned above mean a gearing effect on the tightness of settlements for ‘unprotected’ areas where no pledges have been made. The IFS highlights this by noting that while the latest provisional totals imply that there will be an increase in overall day-to-day spending, decreases will occur in the unprotected areas. 
  • Protecting the unprotected will cost money. Based on the OBR’s Autumn Statement calculations, over the four years from 2019/20 to 2023/24, the Chancellor would need to find: an extra £2.2bn to avoid real cuts to ‘unprotected’ spending overall; an additional £5bn to avoid this spending falling in per-capita terms and; an extra £11bn to avoid it falling as a share of national income. 
  • Brexit, inevitably… The IFS view, shared by the Bank of England in its latest Quarterly Inflation Report (QIR) , is that a disorderly Brexit would be likely to lead to lower economic growth in the short and long run. However, the IFS suggests this would not necessarily mean less money available for the 2019 Spending Review. 

There would eventually be a requirement for lower spending, and/or higher taxes, than would otherwise have been the case. The IFS, like many economists, thinks that a fiscal tightening would not need to happen immediately, and that there could be a case for more spending over the next few years, to assist with border issues and mitigate the impacts for the worst-hit sectors or areas.

The IFS paper is a reminder of the constraints the Treasury faces. In the Autumn Budget the OBR effectively presented the Chancellor with a windfall of about £18bn by favourable adjustments to its forecasts. Since then, the UK (and global) outlook has darkened. For example, the OBR was looking for 1.7% UK growth in 2019, whereas the Bank’s QIR is now pitching the number to be 1.2%.

As Robert Chote, the OBR’s chief executive noted three years ago when the OBR supplied George Osborne with a helpful fiscal windfall, “What the sofa gives, the sofa can easily take away”…

Source: IFS 11/2/19

Second properties not subject to the higher SDLT rates if not suitable for occupation

(AF1, RO3)

The First-tier Tax Tribunal has ruled that the higher rates of stamp duty land tax (SDLT) that apply to purchases of residential properties by companies, trusts and individuals who already own (and are not replacing their main residence), do not apply where the property is derelict or uninhabitable.

The case (PN Bewley Ltd v HMRC, 2019 UKFTT 0065 TC) concerned a derelict bungalow and plot of land in Weston-super-Mare which was purchased by a company set up by Mr and Mrs Bewley. The intention was to demolish the existing bungalow and build a new dwelling on the same site.

As purchases of 'dwellings' made by companies are charged to SDLT at the, relatively new, higher rates of SDLT (i.e. with the 3% surcharge) that apply to individuals purchasing second homes, HMRC amended the Bewleys’ tax assessment on the basis that the property constituted a dwelling, despite its dilapidated state. However, the Bewleys argued that they should only pay the non-residential rate of SDLT on the property, since it was clearly derelict and not suitable for occupation.

The First-tier Tax Tribunal agreed, noting that the test is not whether a building is 'capable' of being used as a dwelling following renovation, but whether it 'is used, or is suitable for use as a dwelling' at the point at which the SDLT charge arises. On the basis of photographs supplied by the taxpayers, it was evident that the building did not meet these criteria. The Bewleys' SDLT bill was reduced accordingly.

In Bewley, the property was purchased by a company.  However, the same test applies to purchases of second properties by individuals as well as to purchases by discretionary trusts. Consequently, unless the First-tier Tax Tribunal decision is appealed and overruled, it will provide options for property investors looking to avoid the SDLT surcharge.

Source: P N Bewley Ltd v HMRC, 2019 UKFTT 0065 TC

Interest in possession trusts – who is taxed on trust income?

(AF1, JO2, RO3)

 It is generally well known that trustees of interest in possession trusts have a liability to income tax at the basic rate on any income they actually receive. Such income will, of course, be taxed on the beneficiary entitled to the income and, in effect, the trustees will be paying tax at the basic rate on behalf of the income beneficiary. It is also generally well known that the way to avoid the trustees having to pay tax at the basic rate is to mandate all the trust income to the beneficiary so that it cannot be said that the trustees actually received this income. However, we have come across a view from some practitioners that in order to avoid assessment on the trustees, it is essential that agreement from HMRC is sought in each case.

 A recent decision from the First-tier Tax Tribunal (FTT) in the case of Trustees of the Paul Hogarth Life Interest Trust 2008 v HMRC, [2018] UKFTT 595 TC helpfully confirms that income will not be taxed on the trustees if the income is mandated to the beneficiary and paid to them directly from the source and not through the trust bank account. Clearly, it is essential to note that the income must not pass through the trust bank account. In practice, with many trusts where professional trustees are acting, and their fees are charged to trust income, the trustees will be unlikely to agree to mandate all the trust income to the beneficiary. In such a case the trustees will have a tax liability at the basic rate with a tax credit available to the beneficiary.

In the above case, all the income was mandated to the life tenant and the trust did not have any chargeable gains (so no other tax liabilities or reporting duties) for the tax years in question.  Nevertheless HMRC issued a notice to file a tax return. The trustees filed a late return and were served with late filing penalties totalling £1,300. At this point the trustees appealed and the FTT allowed their appeal. The Tribunal confirmed that if there is no income chargeable on trustees and no chargeable gains arise then section 7 of the Taxes Management Act 1970 (requirement to notify chargeability) is of no effect and there is no obligation on anyone to notify HMRC. As a result, a notice to file a tax return cannot be issued to trustees where all income is mandated to a beneficiary and there are no chargeable gains in the year, and no one can be penalised for failing to deliver a return.

Given that there has been some confusion about the circumstances in which the trustees' liability/reporting can be avoided altogether, the above decision is very useful for all practitioners.

Source: The Trustees of the Paul Hogarth Life Interest Trust 2008 v HMRC, [2018] UKFTT 595 TC

Review of the Mental Capacity Act 2005 Code Of Practice

The Ministry of Justice has launched a consultation on potential revisions to the Mental Capacity Act 2005 (MCA) Code of Practice.

The consultation was launched on 24 January and closes on 7th March this year.  It asks practitioners in England and Wales to suggest potential revisions to the above Code of Practice (COP).

The COP (all 296 pages of it) is a key document supporting the MCA with practical guidance and examples of best practice for dealing with people who lack capacity to make their own decisions about their care and treatment, or who want to prepare for the loss of capacity.

The key reason for the consultation is the new system of "Liberty Protection Safeguards". These new safeguards are due to replace the current system of Deprivation of Liberty Safeguards which, following the Supreme Court’s decision in 2014, all now have to be judicially approved. This has resulted in the system failing to work altogether given that hundreds of thousands of cases have had to be dealt with through the Courts. 

In 2017 the Law Commission for England and Wales recommended the new Liberty Protection Safeguards model and this will be incorporated in a new Mental Health Act which the Government has promised following the publication of the final report from the Independent Review of the Mental Health Act 1983. The Mental Capacity Act itself is not being reviewed. 

The Liberty Protection Safeguards recommended by the Law Commission are based in care planning and provide a simpler and streamlined system.  There will be independent oversight of all authorisations and a strengthened role for, and consultation with, families and carers.  A separate code of practice is being developed to support the Liberty Protection Safeguards and this will form a part of the revised MCA Code of Practice, hence the opportunity is being taken to review the COP in its entirety.

With the number of elderly persons suffering from dementia steadily increasing (it is estimated there are about 2 million people in England and Wales alone who have lost capacity through dementia, disability or injury), whilst financial advisers are unlikely to be involved in day-to-day practical issues of assessing capacity, it is important to be aware of what legislation exists and what codes of practice are in place to help those involved in this area.

Source: Revising the Mental Capacity Act 2005 Code of Practice: Call for evidence.  Published by the Ministry of Justice on 21 January 2019

HMRC encourages married couples and civil partners to use the marriage allowance

(AF1, RO3)

HMRC has issued a press release dated 14 February encouraging married couples and people living in a civil partnership to sign up to the tax free break, which is worth up to £238 this year.

According to HMRC more than 3.5 million couples are already benefiting from the marriage allowance, but HMRC estimates around 700,000 couples are still eligible for the free tax break. What’s more, if their claim is backdated they could receive a lump sum of up to £900.

Broadly the marriage allowance enables lower income workers to transfer £1,190 of their personal allowance for 2018/19 to their husband, wife or civil partner if their income is higher. This reduces their tax by up to £238 for 2018/2019 tax year.

More information is available on HMRC’s website and couples can apply online to take advantage of this tax break.

Probate fee increases nodded through

(AF1, RO3)

Last November, the Parliamentary Under Secretary of State for Justice issued a written statement on increases to probate fees in England & Wales. The proposed new fees attracted considerable criticism, prompting one financial advice group to ask the Competition and Markets Authority (CMA) whether it could intervene.

Despite the complaints, the government has moved ahead with secondary legislation. On 7 February the House of Commons Fourteenth Delegated Legislation Committee voted 9-8 in favour of the statutory instrument (SI). The SI is now due to go before the House of Commons where it will pass into law unless there is a formal objection and subsequent vote against it. The changes are set come into force in April – no specific date has been mentioned yet.

There is likely to be a minor rush to submit probate applications for larger estates before the new scales arrive, while applications for estates over £5,000 but not more than £50,000 might be deferred to avoid the current fee scale (£215 for individual application, £155 via a solicitor).

These increases are widely seen as a tax-raising measure – the Ministry of Justice needs the revenue as it has seen a 40% real terms cut in its day-to-day Budget between 2010/11 and 2019/20. The Law Society is calling on its members to write to their MPs about what it regards as “a ‘stealth tax’ and a misuse of the lord chancellor’s fee-levying powers”.




Clouds gather over property funds

(AF4, FA7, LP2, RO2)

Go back a little over two and a half years to the Brexit referendum and one of the unexpected short-term consequences surrounding Clouds gather over property funds the vote was a run on UK property funds. As we remarked in a bulletin we issued at the time, some leading property funds attempted to pre-empt a "Leave" result by switching from an offer valuation basis to a bid valuation basis, at a stroke taking 5% or so off the fund prices. When that did not stem the outflow, there were further cuts to fund prices followed by a round of suspensions (“gating”). Aberdeen (as was) slashed property valuations by 26%, arguing that such a move reflected ‘fire sale’ prices.

By the start of 2017 matters had calmed down and all the gated funds had reopened. The 2016 fund freeze was not the first time that property funds had been shuttered – the same happened during the financial crisis in 2008. The FCA’s initial 2016 response was to issue guidance on dealing with fund suspensions and investor communications. This was followed in February 2017 by a discussion paper on “Illiquid assets and open-ended investment funds”.

Over a year and a half later, in October 2018,  the FCA published a consultation paper (CP18/27).  One of the key proposals in the paper was the introduction of mandatory temporary dealing suspensions. These would be triggered when the independent valuer of a fund “has expressed material uncertainty about immovables that account for the value of at least 20% of the scheme property”. Before that stage was reached, suspension was permissible if conditions met the existing test of being taken in the interest of all unitholders (COLL 7.2.1R).

The consultation period for CP18/27 ended on 25 January. Ironically, the FCA’s slow progress in setting out new rules is now running into a fresh Brexit-related issue. On Thursday 7 February the Financial Times (FT) reported that since “late last year” the FCA had been monitoring property fund outflows on a daily basis. Net retail sales of UK Direct Property collective funds were -£228m in December 2018 and the sector contracted by 2% across the month to £19.3bn according to the latest Investment Association (IA) stats. December marked the third consecutive month of net retail outflows, which totalled just under £300m across 2018.

Thursday also saw the news emerge from Property Week that the Henderson UK Property OEIC was selling 169 Union Street, London SE1, a £95m property and the third largest in its portfolio, “after a spate of fund redemptions”.

Brexit concerns are not the only issue facing property funds. The retail property sector is suffering from a rash of insolvencies and company voluntary arrangements (CVAs) aimed at slashing rental costs. In December, the Royal Institute of Chartered Surveyors (RICs) issued a ‘Valuation notification’ warning of “structural change in the commercial retail market” and stressing the need for valuers to use the widest range of evidence available, not just recent sales (of which there have been few).


There is no immediate crisis: the FT report suggested that outflows may have eased in January. Data from Trustnet shows that as at the end of last year, most of the major funds had 15% or more liquidity. However, as Summer 2016 demonstrated, a stampede for the exits could lead to a swift change in the situation.

Source: Various press reports

The January inflation numbers

(AF4, FA7, LP2, RO2)

The CPI for January showed an annual rate of 1.8%, a 0.3% fall from the previous month and the lowest since January 2017. Across December to January prices fell 0.8%, 0.3% more than between December 2017 and January 2018. The market consensus had been for a drop to a 1.9% annual rate. The CPI/RPI gap widened by 0.1% to 0.7%, with the RPI annual rate down 0.2% at 2.5%. Over the month, the RPI was down 0.9%.

The ONS’s favoured CPIH index was down 0.2% for the month, also at 1.8%. The ONS notes the following significant factors across the month:


Housing and household services The largest downward contribution came from this sector, although with something of an ironic twist. Gas and electricity prices fell between December 2018 and January 2019, by 8.5% and 4.9%, respectively, partially reflecting adjustments by energy providers to Ofgem’s 1 January energy price cap. Last week Ofgem announced that the cap would rise by 10.3% from 1 April and suppliers are already responding in the predictable way.

Restaurants and hotels Within this category the price of accommodation services. dropped by 2.9% between December 2018 and January 2019, compared with the 0.6% fall between December 2017 and January 2018. The net effect was a 0.05% CPIH reduction.

Clothing and footwear  There was a downward contribution of 0.05% to the CPIH from clothing. This was primarily due to women’s and children’s clothing, which generally saw larger price drops between December 2018 and January 2019 compared with the same period a year ago. However, this clothing price drop was partially offset by a small upward contribution from footwear, caused by smaller price drops for women’s shoes compared with last year.

Transport There was a large downward contribution to the change in the CPIH 12-month rate from motor fuels. Petrol prices fell by 2.1p per litre between December 2018 and January 2019, compared with a rise of 1.1p between December 2017 and January 2018. This was partially offset by upward contributions from air fares and sea fares. Prices for air fares fell by 25.5% between December 2018 and January 2019 compared with 33.2% between the same two months a year ago. Sea fares rose between December 2018 and January 2019 compared with a fall between December 2017 and January 2018.


Furniture, household equipment and maintenance There was a small upward contribution from furniture, furnishings and carpets.

In four of the twelve broad CPI categories annual inflation decreased, while six categories posted an increase. Alcoholic beverages and tobacco remain as the highest category with an annual inflation rate of 4.2%. Housing, water, electricity, gas and other fuels annual inflation dropped from 2.8% to 1.1%, by far the biggest change between December and January.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was flat at 1.9%, underlining the impact of that temporary fall in utility prices. Goods inflation, at 1.3%, showed a 0.5% decline, while services inflation, at 2.5%, was up 0.1%.

Producer Price Inflation was 2.1% on an annual basis, down 0.3% on the output (factory gate) measure. Input prices rises slowed further to 2.9%, down 0.3% on December. The main driver here was once again oil prices.

As its latest Quarterly Inflation Report made clear, the Bank of England is in no rush to raise interest rates. These numbers will help maintain that procrastination, although the Bank is more likely to take comfort from the unchanged core figure than the utility-distorted CPI.

Source: ONS 13/02/19



Government response to the consultation on protecting defined benefit pension schemes

(AF3, FA2, JO5, RO4, RO8)

Following on from the DWP White Paper Protecting Defined Benefit Pension Schemes, the DWP consulted on changes in a document called ‘Protecting Defined Benefit Pension Schemes – A Stronger Pensions Regulator’. Now the DWP have published the results of the consultation and their response to the feedback on the proposed changes.

In the response it has been confirmed that they have set out a range of measures to improve member protection including:

  • Delivering clearer funding standards for all Defined Benefit pension schemes and a requirement for a Chair’s Statement on the scheme funding strategy, jointly with measures to help employers, trustees and the Pensions Regulator (TPR) work together to better protect members’ pensions;
  • Greater clarity for sponsoring employers to help them better understand how and when to notify TPR of certain business transactions and events, improving TPR’s ability to ensure the needs of the pension scheme are properly considered when companies undertake corporate transactions;
  • Enhanced investigatory powers for TPR to obtain the right information when they need it; and
  • New powers to strengthen existing safeguards to enable TPR to punish wrongdoing when necessary.

The changes in detail are the following

Changes to the existing notifiable events framework

Additional notifiable events

  • Sale of a material proportion of the business or assets of a scheme employer which has funding responsibility for at least 20% of the scheme’s liabilities; and
  • Granting of security on a debt to give it priority over debt to the scheme.

 Removal of notifiable event

  •  Wrongful trading of the sponsoring employer

There were no other changes to existing notifiable events

Declaration of Intent

The Government intends to legislate for the introduction of a Declaration of Intent by the transaction’s corporate planners that will be shared with the trustee board of the pension scheme and TPR.

The Government remains of the view that transactions in respect of new and existing employer-related notifiable events

  1. a) Sale of controlling interest in a sponsoring employer (an existing notifiable event);
  2. b) Sale of the business or assets of a sponsoring employer (new notifiable event); and
  3. c) Granting of security in priority to the scheme on a debt to give it priority over debt to the scheme (new notifiable event)

should trigger the requirement for a Declaration of Intent.

Voluntary Clearance

The Government believes the below are the right areas for TPR to focus on in their review of the guidance on the voluntary clearance process.

  • The material detriment definition and how applicants and pension scheme trustees should approach the test;
  • Revision of the definition of event types, including the circumstances in which clearance is given in relation to Financial Support Directions (FSD); and
  • More information about the clearance process and what applicants and pension scheme trustees can expect; to include expectations around timing of applications. Additionally, providing clarity on whether the Declaration of Intent is intended to be an alternative to the clearance process was suggested.

 Improved Regulator Powers

The table below summarises the new civil and criminal offences the Government intends to proceed with, including the proposed targets and penalties. These will be in addition to existing powers. 

New Offence

New Penalty


Wilful or reckless behaviour in relation to a pension scheme

Criminal offence: up to 7 years’ imprisonment and/or unlimited fines


New civil penalty: up to a maximum of £1 million

Sponsoring employers and others associated or connected

Failure to comply with a Contribution Notice

Criminal offence: unlimited fines


New civil penalty: up to a maximum of £1 million

Sponsoring employers and others associated or connected

Failure to comply with a Financial Support Direction

New civil penalty: up to a maximum of £1 million

Sponsoring employers and others associated or connected (Not individuals with the exception of controlling shareholders who are individuals)

Failure to comply with the Notifiable Events Framework

New civil penalty: up to a maximum of £1 million

Sponsoring employers and trustees

Failure to comply with requirements for a Declaration of Intent

New civil penalty: up to a maximum of £1 million

Sponsoring employers and others associated or connected

Knowingly or recklessly providing false information to trustees

New civil penalty: up to a maximum of £1 million

Any person who is required to provide information to trustees as prescribed

Non-compliance with information requests (including inspections and interviews) or delays in providing information

Fixed and escalating civil fine The Government will develop the levels of fines as part of its secondary legislation package

Any person targeted by TPR under section 72 to 75 of the Pensions Act 2004

Knowingly or recklessly providing false information to TPR

New civil penalty: up to a maximum of £1 million

Any person who is required to provide information to TPR as prescribed

Non-compliance with clearer funding standards

Strengthened section 231 (Powers of the Regulator) scheme funding power and existing powers (such as improvement notices) of the Pensions Act 2004

Trustees and sponsoring employers

Failure to provide a Chair’s Statement, failure to provide on time or providing a poor-quality statement

Existing civil penalty under section 10 of the Pensions Act 1995

Trustees and sponsoring employers

Anti-Avoidance Powers

Consultation looked at proposals to strengthen, clarify and improve TPR’s anti-avoidance powers, specifically considering Contribution Notices and Financial Support Directions 

The Government will proceed with the improvements outlined in the consultation to the Contribution Notice system. 

  • The Government will amend the reasonableness test as set out in section 38(7) of the Pensions Act 2004 (Reasonableness Test) to reflect that the actual or potential impact of the act, or failure to act, on the value of the scheme’s assets or liabilities, would be a relevant consideration when determining the amount to be paid under a CN; and 
  • The Government will add two additional limbs to the material detriment test (as set out in section 38A(4) of the Pensions Act 2004) in order to clarify the legislation. We propose that a snapshot funding approach should be used in both new limbs, and that the test would be met if either:
    • The amount the scheme would have recovered on a hypothetical insolvency of the employer is materially reduced as a result of the act; or
    • The “value” of the employer provides materially less ‘coverage’ of the scheme’s section 75 deficit following the “act”. 
  • The Government will provide a specific mechanism by which impacts of the delay in payment will be reflected in the Contribution Notice sum, rather than allowing for differing approaches under the reasonableness test. The Government has considered the suggested uprating mechanisms to reflect the time between the act and the determination to issue a CN. The Government will continue to consider whether a specific uprating mechanism should be set out in legislation, and will further explore the ways in which uprating the value of the CN can be reflected in the CN legislation.
  • Change the date on which the cap on the level of a Contribution Notice is calculated. Rather than calculating the cap at the date of the ‘act’, the cap will be calculated at a date closer to the final determination. The Government is currently working through the details of this change with TPR. 

Financial Support Directions (FSD) 

The Government has considered the views received on the potential impact of 30 streamlining FSDs and intends to proceed with the proposal. The Government will continue to work with TPR and the PPF to amend the FSD process to a single-stage process, in which the Determinations Panel imposes a particular form/amount, of enforceable financial support on a target. Furthermore, to reflect the changes to the FSD regime, the Government will also change the name of the regime to Financial Support Notice (FSN). 

The Government will not progress with the proposal to enable TPR to issue an FSD once a scheme has transferred to the PPF at this time. The Government will continue to develop these measures, including the FSD enforcement activity, with TPR and the PPF to ensure that there are no unintended consequences. 

The Government intends to progress with replacing the IR Test with a new test which will be scheme-focussed. The Government will continue to work with TPR on the details of this test, which will be set out in secondary legislation. Additionally, the Government agrees that the current definition of a Service Company needs to be amended, and intends to progress this proposal. 

The Government will proceed to tighten the forms of financial support to cash and/or joint and several liability- by which we mean where the targets are jointly and severally liable for the sponsoring employer’s liabilities in relation to their pension scheme. 

Government’s view that as part of the FSD process, there should still be scope for the target to agree an alternative form of financial support with TPR prior to determination through settlement outside the formal FSD process. The Government will work on the details of the proposals with TPR and will assess potential flexibilities as part of this process. 

 TUC calls for greater contributions

(AF3, FA2, JO5, RO4, RO8)

The Trades Union Congress (TUC) has published an analysis calling on the Government to review earnings thresholds for automatic enrolment.

Back in December 2017, the DWP issued a paper, “Automatic Enrolment Review 2017: Maintaining the Momentum” which examined future developments for auto enrolment once the contribution level had reached 8% in April 2019. Two key proposals in the paper were: 

  • The lowering of the age threshold from 22 to 18; and 
  • The removal of the Lower Earnings Limit (LEL) so that contributions “are calculated from the first pound earned”.

However, the paper was vague about when these reforms would be introduced, with the then Secretary of State (David Gauke) saying that “The government’s ambition is to implement these changes to the automatic enrolment framework in the mid-2020s”. He also said that during 2018 the DWP would “work to build a renewed consensus to deliver the detailed design and implementation of our proposals”.

As has happened with much Government policy, that timetable seems to have slipped in the wake of the Brexit travails. The TUC has decided to remind the Government of its plans as part of its ‘Fit for the future’ pensions conference, which took place on 5 February. The TUC’s arguments, which to an extent echo comments in the original DWP paper are that: 

  • Lowest earners are hit the hardest by the LEL exclusion, which in 2019/20 will leave £6,136 of earnings un-pensioned. 
  • At the earnings trigger point of £10,000, in 2019/20 the effective contribution rate is 3.1% rather than the headline 8% figure because of the LEL floor – a £490 shortfall against a contribution based on full earnings. 
  • The Government’s own figures show that LEL abolition would mean an extra £2.6bn a year in contributions, including £1bn more from employers. 
  • A delay from 2022 to 2028 (extremes of mid-2020s) would mean a worker earning £10,000 and retiring in 40 years’ time could have a pension pot of £62,387 in 2059 rather than £74,654. 

For a median earner, which the TUC puts at “just over £24,000 a year”, their final pension pot could amount to £177,390 if the LEL is abolished in 2028 against £189,660 if it were removed six years earlier. 

The DWP response has been that it is wants to maintain the balance between increased pension savings and affordability. In this regard, the department will be watching the impact of April’s contribution level rise from a 5% to 8%. No doubt the Treasury is also considering the effect of the extra tax relief (£0.5bn+) associated with a further £2.6bn of pension contributions. 

The DWP’s caution is understandable. For somebody with earnings not far above that £10,000 earnings trigger, an extra £20 a month in pension contributions is a significant additional deduction. And that £20 assumes the individual benefits from a full 20% tax relief – an estimated 1.2m members in ‘net pay’ schemes may not. The forthcoming 5.5% rise in the personal allowance to £12,500 will only exacerbate this missing relief problem, which needs addressing at the same time, if not before, as any scrappage of the LEL floor.