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SP3 - Approbated Schemes Grandfathering Provisions

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The Schedule to The Secondary Pensions (Guernsey and Alderney) Law, 2022 sets out the essential criteria a pension scheme must meet to be an approbated pension scheme.

Recognising that many existing pension schemes may choose to become approbated schemes, grandfathering provisions apply to ensure the approbated scheme criteria set out in paragraph 3 of the Schedule only apply:

Transfers into approbated schemes

Any transfers into a scheme after the date on which it became approbated will not be subject to the grandfathering provisions (as they will be considered contributions made since the date on which the scheme became approbated).

This includes any transfers that meet the conditions set out in section 157A(12) of the Income Tax Law, therefore may limit the ability for those funds to be used as flexibly as under the rules of the superannuation fund from which they were transferred or the relevant provision of the laws of the place in which that scheme from which they are transferred is situated.

Triviality - fund value of up to £15,000

An approbated scheme must not allow a member under the age of 50 to take triviality after 3 months from the date of enrolment regardless of the value thereof, except in relation to grandfathered funds.

Whilst triviality may be taken in respect of grandfathered funds, it will be the total approbated scheme fund value of the member (i.e. grandfathered and not grandfathered funds) that will be considered.

Example 1

Member X is a 31-year-old member of a defined contribution approbated scheme. The total fund value is £12,000, of which £5,000 are funds in relation to contributions made since the date on which the scheme became approbated. Member X may commute £7,000, i.e. the grandfathered funds, as the total fund value is under £15,000. Tax at 20% is payable on the commuted funds.

Example 2

Member Y is a 44-year-old member of a defined contribution approbated scheme. The total fund value is £25,000, of which £15,000 are funds in relation to contributions made since the date on which the scheme became approbated. As the total fund value is above £15,000, Member Y is not able to take trivial commutation, even where the grandfathered funds are below £15,000.

Loans to Members

An approbated scheme may not permit loans to members save for the purpose of contributing to the purchase, extension or alteration of the member's principal private residence, provided that residence is in Guernsey, Herm, Jethou or Alderney.

The onus is on the Member to certify to the Trustees/ Administrator of the Scheme the purpose of any loan and that this is a permitted reason. The Trustees/ Administrator should retain this information, as whilst they do not need to send this confirmation to anyone, they will need to be able to provide this information to the Revenue Service if they request it.

The only exception to this is where the scheme was created prior to the operative date, namely the date at which the scheme is first used as an approbated scheme by an employer. So for a multi-employer scheme, this will be the earliest operative date of all the employers that use that scheme.

In this case, provided that from the operative date the scheme does not allow any further loans to be taken by Members except for permitted reasons, this would not preclude the scheme from meeting the criteria to be approbated.

Example 3

Employer A has offered Pension Scheme B to its employees since 2020. The scheme rules allow members to take loans and Employee C  took a loan of £5,000 to buy a boat on 30 June 2023.

As a large employer, the relevant operative date for Employer A is 1 July 2024. The existing loan to Employee C will not preclude Pension Scheme B from being treated as an approbated scheme, so long as at  the operative date Pension Scheme B meets all the relevant approbated scheme criteria, having amended its rules to no longer permit loans (except for the purpose of contributing to the purchase, extension or alteration of the member's principal private residence) and Employer A makes the minimum contribution.

Employer B also offers Pension Scheme B to its employees, but the operative date for Employer B is 1 January 2025. Pension Scheme B will not be able to provide loans to members who are employees of Employer B (except for the purpose of contributing to the purchase, extension or alteration of the member's principal private residence) after 1 July 2024, that being the first date from which Pension Scheme B is treated as an approbated scheme.

Published:      November 2023

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