Rosscot Director Andy Bougourd is a qualified Chartered Certified accountant, Chartered Tax Adviser and in 2013 he was called to the Bar. Here he discusses a recent amendment to the Income Tax (Jersey) Law and what it means for the flexibility of local pensions and pension schemes.
In October 2013, a consultation document was issued by the States of Jersey tax policy unit in respect of pensions and pension schemes. The rationale for this was to modernise the Income Tax (Jersey) Law 1961 of pensions and pension schemes. The consultation culminated on 24 September 2014, with the adoption of Income Tax (Amendment No 44) (Jersey) Law that came into force from 1 January 2015.
One significant change is the Pension Contribution Limit into an approved Jersey scheme. Until 1 January 2015, the annual maximum limit an individual was able to place into an approved Jersey pension scheme was £50,000. From 1 January 2015 there is no ceiling on the amount which can be added to an approved Jersey pension in any one year of assessment.
However, the contribution should not be confused with the tax relief that you can obtain on contributions being made into an approved Jersey pension scheme. The maximum relief available in any one year of assessment for contributions made to an approved Jersey pension scheme still remains £50,000 and for those individuals who earn over £150,000 their contribution relief is limited further or lost completely.
An occupational pension is one where a trade or undertaking has Jersey employees and the scheme is approved by Jersey Income Tax. Ordinarily both the employer and the employee contribute to the scheme. The material changes as of 1 January 2015 are:
- The amount of pension income that can be paid to an individual moving forward will be determined by either the rules of the scheme or the size of the fund if a defined contribution scheme;
- Restrictions on the amounts dependents can receive are lifted;
- A pension holder will not need to have retired to be able to draw their pension.
A number of caveats apply to the major changes highlighted. For those schemes already in existence at 31 December 2014, the pension trustees will still need to comply with the 31 December 2014 scheme rules; otherwise they will be in breach. There are however transitional provisions which allow the trustees of the scheme either to amend the rules to meet the new criteria or, if the trustees choose not to, the new rules will apply from 1 January 2018.
Both occupational pension and approved private pension schemes are now in alignment over the lump sum payment that can be taken from a pension. Having reached the age of 50, an individual can draw up to 30% out of their pension scheme free of taxation. Previously this 30% was subject to only being up to three withdrawals – going forward it will be possible to take it in any number of tranches, allowing for pension holders to draw down as and when money may be required.
For those individuals who sadly find themselves seriously ill (not expected to live for more than 12 months and have evidence to support this from a medical practitioner) they will be able to commute their pension immediately.
With a high number of Jersey businesses working cross-jurisdictionally, International Pension Plans have become an increasing focus and changes have also been made. Subject to a number of caveats, it may be possible for transfers to be made out of an approved Jersey pension scheme to a non Jersey pension scheme and vice versa. Where an occupational pension scheme has both Jersey and non Jersey members it is now possible to obtain split approval. This means that approval can be sought for approved pension status for those Jersey members.
A number of other changes have occurred that we do not have space to discuss in depth in this article but they include;
- A retirement annuity trust is now defined as a Retirement Trust Scheme;
- Individuals will have the ability to transfer their pension fund to an approved drawdown contract in certain circumstances; this will provide the pension holder with the ability to draw funds as and when required even if a tax free lump sum has already been taken;
- The potential to partly transfer funds out of an approved Jersey pension scheme subject to a number of caveats;
- Non Jersey resident individuals will be able to contribute into a Retirement Trust Scheme.
In summary,The States of Jersey acknowledged that the Jersey pension tax legislation required urgent modernisation, partly to provide more flexibility for individuals but also recognising that compared to other jurisdictions Jersey was lagging.
Trustees of an occupational pension scheme have now been provided with the opportunity to create more flexibility within scheme rules. Prior to trustees rushing in, they will need to consider their current scheme rules, what amendments are necessary (if any) and significantly what impact these proposed amendments will have on the transitional rules.
This article is intended to give an overview of Amendment No 44 and the guidance notes issued by Jersey Income Tax. Please be advised that it is necessary to obtain professional advice before acting as everyone has a unique set of circumstances.