Confusing protection application forms published by Her Majesty's Revenue and Customs (HMRC) has resulted in nearly a third of applications being rejected, according to the latest newsletter from the department.
HMRC says one of the main reasons behind the large number of rejections of form APSS 200, has been members are ticking “yes” to question 3.1 which asks “Have you been an ‘active’ member of a registered scheme at any time after 5 April 2006”.
But the definition of what is an “active” member is what seems to be confusing many people, as the explanation notes suggests an “active” member is someone who has “relevant benefit accrual”.
However, according to Rachel Vahey, head of pensions development at Scottish Equitable, under the enhanced protection rules, if you are a member of a defined benefit scheme then you can continue being what is called an “active” member of a scheme and carry on accruing benefits.
But as an "active" member with protection you can only have limited accrual, and if the accrual goes over a certain level, called the appropriate limit, then the enhanced protection is lost.
Vahey revealed last week Scottish Equitable had received a number of enquiries over the protection forms and what the terms “active” member and “relevant benefit accrual” means.
In its latest Pension Tax Simplification Newsletter, the HMRC says in the first few weeks, they have had to reject nearly one-third of the APSS 200 forms partly because of people ticking the wrong box to questions 3.1 on active members, and question 3.4 which asks if a member has surrendered their excess rights, both of which automatically mean members are not entitled to enhanced protection.
As a result HMRC say people should read the guidance notes carefully and should in particular “please note that the term ‘active’ on the APSS 200 at question 3.1 is used in a different sense to the often used term ‘active member’.”
It says a person is only considered to be an ‘active’ member of a registered pension scheme, and therefore not entitled to enhanced protection, if after 5 April 2006, any of the following occur:
- Relevant benefit accrual occurs under any one of a member’s arrangements in a registered pension scheme. HMRC says this can occur in different ways depending on whether the arrangement under which the benefits are being provided is a money purchase arrangement, a defined benefit (DB), or cash balance arrangement.
- A transfer is made from any arrangements in a registered pension scheme which is not classed as a ‘permitted transfer’.
- A member sets up a new arrangement under a registered pension scheme for any other reason except to receive a ‘permitted transfer’.
HMRC says it has also received incorrectly filled forms where a lump sum figure has been added at question 3.6 but then not included in the total amount of pension rights at question 3.7.
In addition there have been problems with part 4 of the form which deals with Primary Protection applications, with HMRC saying it has received a lot of queries about questions 4.5 and 4.6 which relate to the valuation of assets.
As a result it says “the accompanying notes explain further what is required here and what each category of asset at question 4.6 should include.”
However HMRC points out the total of all assets declared at question 4.6 is “unlikely” to be the same as the value of pension rights stated in section 4.1, because 4.6 only requires the value of assets underpinning a money purchase arrangement, while 4.1 is the value of all a member’s pension rights not in payment at 5 April 2006.
Vahey says it is quite interesting to see the Revenue has had to turn down so many applications because people have filled the forms in wrong, particularly as these will probably have been the simpler cases they were looking at first.
She adds: “I know my first impression of the form was it was very difficult to fill in, and following the number of people who have queries about filling the form in, its possible the revenue may have to have another look at the way the form is set out.”
Georgina Myles, spokeswoman for HMRC, says it has to date received 984 notifications on form APSS 200 for an enhanced lifetime allowance, and of those it has had to reject 224.
She says the rejections included a significant proportion that were sent in early, while the other main reason for rejection is a simple failure to complete both declaration boxes as opposed to merely one.
Myles says the original draft of the form was published over 12 months ago on the HMRC website, to give the pensions industry a chance to look at the form and give feedback on it.
She adds: "Comments from this were taken on board for the final version of the form published in March 2006, and since A-Day, we have not had any complaints on completing the form, but have received a number of compliments on the ease of using the form and the speedy response from those who have received their certificates."
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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