The trustees of most UK occupational pension schemes* have new record keeping and other obligations under anti-money laundering (AML) legislation.
Since our briefing earlier this year, HMRC has provided guidance on the extent of these duties.
The legislation aims to hinder criminal activity by making the ownership of trust assets more visible.
Of all the trusts within the scope of the legislation, occupational pension schemes are likely to be towards the low risk end of the scale for money laundering. The likelihood they will be asked by law enforcement bodies to provide member data is correspondingly low.
The full obligations are detailed. Here we give an outline of what is required.
The main duties are:
- the trustees must maintain up-to-date records on scheme members and others
- if the scheme incurs certain taxes, the trustees must file information with HMRC’s new register of the owners of trust assets. However, HMRC expects only a minority of schemes will incur the taxes that lead to this requirement.
Duty to keep records – all trust-based pension schemes
Trustees’ most onerous duty is to keep accurate and up-to-date data on scheme beneficiaries like actives, deferreds, pensioners and their survivors.
Although there is room for argument under the legislation, HMRC’s view in its guidance is that trustees need to hold individualised data on each known beneficiary. Identifying classes of beneficiaries by general description is insufficient.
Industry bodies have pointed out to HMRC that although trustees work hard (for legal, regulatory and practical reasons) to maintain comprehensive records, there can be considerable challenges. For example, gaps in historic records following scheme and group reconstructions (including among administration providers), and losing track of members especially when they move overseas.
The data required includes:
- full name
- date of birth
- NI number or unique tax reference number or
- if the individual has neither, their usual UK address or
- if no there is no UK address, passport or ID card details (country, number, and dates of issue and expiry).
Trustees must also hold data on the "settlor(s)" of the trust. Here HMRC interprets “settlors” to mean the original principal employer or, if that no body longer exists, the current one. The data includes corporate name, unique tax reference number (if any), registered office, legal structure (e.g. company incorporated under the Companies Acts), name of the register in which the body is entered (e.g. the Register at Companies House) and the role of the body plays (e.g. sponsoring employer).
What about missing data?
As the guidance points out, it can be a defence against potential penalties (civil and criminal) for non-compliance to show that you took all reasonable steps and exercised all due diligence to comply with the legislation.
Trustees may feel more comfortable here if they initiate new searches for missing data to add to the evidence of their efforts to comply. They will need to weigh the cost of doing this against the risk of being called on by law enforcement bodies to provide data. In determining what is reasonable, trustees can look to the Regulator’s guidelines on record keeping (though the guidance does not give a view on this).
Duty to file information with HMRC – some trust-based pension schemes
When does it arise?
Trustees’ duty to register their scheme with HMRC and to file information arises if the scheme becomes liable for any one of the following taxes in relation to its income or assets:
- income tax
- capital gains tax
- inheritance tax
- stamp duty land tax (or land and buildings transaction tax, the Scottish equivalent) or
- stamp duty reserve tax.
The guidance says the earliest tax year when incurring one of the taxes trips the need to file information is 2016-17.
The obligation is to file information no later than 31 January after the end of the tax year in which the tax was incurred. So the earliest deadline for this filing will be 31 January 2018.
Income tax that can be incurred by trustees in connection with certain payments out of a scheme does not count, for example PAYE and lifetime allowance charges.
Trustees need to assess in relation to each tax year whether or not they need to file information.
What information must be filed?
For the purpose of filing, HMRC is content to accept some data at a class rather than individual level.
In summary trustees must normally provide:
- name of the scheme and the date it was established
- names of the trustees (with a contact address)
- a statement of accounts for the scheme identifying the value of each category of assets
- country where the trust is considered tax resident
- where scheme administration is carried out
- name of the principal employer
- description of the scheme beneficiaries e.g. “current and former employees of the XYZ group of companies and their survivors”
- details on paid service providers who did customer due diligence on the trustees for AML purposes e.g. accountants and tax advisers.
Having filed data, the trustees are required to notify HMRC of changes (except in relation to asset values) within certain deadlines.
Other duties
Duty of disclosure to suppliers
Where trustees, in their trustee role, engage a firm that is required to do client due diligence for AML purposes, they must disclose that they are acting as trustees.
On request from such a supplier, they must also provide information about the trustees, the principal employer and scheme beneficiaries (at a class level).
Duty to provide information to law enforcement bodies
If called on to do so, trustees must provide information on themselves, the principal employer and scheme beneficiaries to the National Crime Agency, the Serious Fraud Office, HMRC, police and the FCA.
Actions for trustees
Trustees should:
- assess whether their records meet the requirements and consider whether further reasonable steps should be taken to fill any gaps
- check whether they were liable in the tax year 2016/17 for any of the taxes that would require registration with HMRC and, if so, register
- provide information to suppliers in line with the new duties.
Trust or company service providers (TCSPs)
Firms in the business of acting as, or supplying, professional trustees to pension schemes may need to register with a "supervisory authority". The same can apply where a business acts as, or supplies someone to act as, a director of a company (a corporate trustee set up as trustee of a particular pension scheme, for example).
To understand their position, TCSPs should consider HMRC’s guidance.
One exception from the requirement to register is where a business acts only in relation to low risk trusts like occupational pension schemes.
Typically a TCSP acting as a trustee will have a specific obligation under AML legislation to retain individualised scheme records for five years after the final payment is made from the scheme.
A supervisory authority oversees compliance with AML procedures, like customer due diligence. The FCA is such an authority, as are various professional bodies. The default supervisory authority for TCSPs is HMRC.
*Broadly this means schemes that are UK based and have UK resident trustees. In cases where there is an overseas element (like trustees who are not UK resident), the duties outlined in this briefing might not apply, or might apply differently.