Keeping your Group Life Scheme compliant: why trustees and employers must act now

Changes that are being made to the online platform that HM Revenue and Customs (HMRC) uses to be kept informed about registered group life assurance schemes should prompt trustees and employers to check and manage their scheme’s registration and administration records

HMRC grants valuable tax breaks to registered schemes, but only if the scheme remains fully compliant with its rules and administrative requirements.

In this Keynote, Pensions & Incentives partner Kevin Gude highlights the steps that trustees and employers can take to ensure ongoing compliance, avoid significant penalties, and safeguard the tax status of their schemes.

Under the Finance Act 2004, every trust-based HMRC-registered pension scheme (including registered standalone group life schemes) must have a “Scheme Administrator” (SA) accepted by HMRC as being fit and proper to fulfil that role. The SA is a statutory position usually held by the scheme’s trustees rather than the scheme’s pensions administrator or advisers. The role imposes legal responsibility for the scheme’s tax compliance and payments, reporting obligations, online access and communication with HMRC. An SA’s failure to perform to the standards required by HMRC can result in penalties and might also prejudice the tax status of the scheme.

For most larger pension schemes, supported by professional advisers and an administration budget, the SA’s role and reporting routines are built into the trustees’ day-to-day governance and management. The administration of standalone group life schemes falls on the employer, with the filing of trust documentation and the management of HMRC compliance made much more difficult, particularly if HR or staff change or the employer has been the subject of an acquisition and historical knowledge has been lost along the way.

This can have a materially detrimental effect on the scheme. Trust deeds and rules can go missing, prejudicing the trustees’ ability to respond to death in service claims. If it’s not obvious who the trustees are, this could raise a further question as to who the SA is, too.

What can employers do?

There are some easy practical steps that employers can take to help prevent that outcome:

They should identify the individual(s) or corporate entity named as the current scheme trustees and check that they are also identified as the SA.

• They should also confirm that the SA is UK-resident, as from 6 April this year all SAs must be resident in the UK.
• If the SA is a corporate trustee, they should ensure the relevant officer(s) are properly recorded and contactable.
• If the individual who was identified as the SA is no longer available or has left, a new SA and contact point must be appointed and notified to HMRC promptly.

Access to HMRC’s online systems is essential for virtually all scheme administration tasks.  This can cause additional complications if scheme particulars are not known, or login details have been lost.

If it is unclear who HMRC has recorded as SA, its pension schemes helpline or email enquiry service can be contacted to confirm or recover registration information. The process may take time as the SA is assigned a unique Government Gateway ID and a Scheme Administrator ID. Without these, the scheme’s online records cannot be accessed or updated, so all Government Gateway credentials and Scheme Administrator IDs should be stored safely, with secure backup arrangements to ensure that they are not lost when key personnel change. Employers should not rely on current advisers or insurers having this access information.

If the identity of the SA is known, but their SA ID isn’t recorded, this can also be recovered from HMRC.  However, it will only be posted to the name and address that HMRC holds, which may not be up to date. Even if the SA does have their ID number, but has not logged into HMRC’s platform within the past three years, their Government Gateway access details will have been deleted automatically. Again, it will be necessary to recover them in that case.

Preparing for HMRC’s new online platform

Scheme details should be up to date in preparation for HMRC’s migration of its registered scheme records to a new platform, its Managing Pension Schemes (MPS) service. Failure to do so risks deregistration of the scheme which could lead to significant additional tax charges being imposed.

Key facts:

• Migration is only possible by the party recognised by HMRC as the SA.
• The process requires detailed information about the scheme, current trustees, and sponsoring employers (including director and trustee personal data).
• The deadline for migration is not fixed for every scheme, but HMRC has stated that schemes left on its old platform will eventually be de-registered.
• The migration process can be time-consuming, especially if SA details are missing or out of date.

Until the employer and trustees can be certain about who the SA is, and online access has been obtained, other necessary steps cannot be taken.

What’s the alternative?

In short, there isn’t one. Employers and advisers might question whether an efficient alternative is to terminate the current scheme and set up a replacement or transfer to a master trust product instead. But this does not relieve the current SA from the need to comply with the statutory rules that already apply to the current scheme. For example, the SA is under an existing legal obligation to notify HMRC if that scheme is to be wound up or terminated altogether. Termination of the scheme cannot be completed until then.

Trustees and employers must take steps to identify who the statutory SA is, ensure their details are correct, safeguard online access, and complete the required migration to the MPS service. Failure to do so threatens the valuable tax status of the scheme and could expose it to severe penalties.

Where there is any doubt or difficulty, such as uncertainty over the identity of the SA, lost scheme deeds and rules or online log-in details, or any doubt over historic trustee succession, employers and trustees should seek specialist legal advice immediately.

If you have questions or concerns about pension schemes, please contact Kevin Gude.