Combating money laundering – the role of the pension scheme trustee

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “Regulations”) came into force on 26 June 2017. The Regulations implement the EU’s fourth Money Laundering Directive and replace, and have a wider reach than, the earlier 2007 regulations.

HMRC has recently issued guidance as to the extent to which the new Regulations apply to pension schemes.

The new requirements

Record keeping

Trustees must maintain accurate, up to date, written records of their schemes’ employers, trustees, members and other beneficiaries. Such other beneficiaries may include members’ spouses and dependents. The records must include the following information:

• in respect of an individual, their name, NI number or unique tax payer reference (if neither of these are available their usual residential address will suffice), their date of birth and the nature of their role in the trust;
• in respect of a legal entity, its corporate name, its unique taxpayer reference, its registered office address, its legal form and the law by which it is governed, its registration number and its role in relation to the trust; and
• a description of the class of persons who are entitled to benefit from the trust.

Retention of records

Paid, professional trustees must retain records following the wind up of a scheme for five years after such a wind up has occurred.

Disclosure

If trustees enter into a transaction with a business, financial or legal professional, they must inform the professional they are acting in the capacity of trustee and provide the professional with the identity of the scheme’s employers, trustees, members and other beneficiaries if requested. To prevent this disclosure requirement becoming too burdensome, the trustee need only describe the class and types of members and beneficiaries without a need for full identification e.g. employees, former employees etc. Any change to the information must be notified to the professional within 14 days from the date of the change.

If requested by a law enforcement agency, trustees must provide information about a scheme’s employers, trustees, members and other beneficiaries.

HMRC’s register of beneficial owners

The EU Directive requires member states to maintain a central register of beneficial ownership information for express trusts with tax consequences. Despite the apparent low risk in relation to pension schemes, they are caught by this regulation. As a result trustees need to provide HMRC with certain information if the scheme is a ‘relevant taxable scheme’.

A scheme is a relevant taxable scheme when it becomes liable to pay certain taxes, including income tax, capital gains tax, stamp duty and inheritance tax in relation to scheme assets. This information must be provided before 31 January 2018 and subsequently on each 31 January after the tax year in which the tax liability arises. To make life a little easier, HMRC has established the Trust Registration Service (TRS) which will provide a single online route for trustees to comply with their registration and disclosure obligations.

On the surface this would appear to be the most onerous requirement of the Regulations. It potentially involves passing significant membership information and data to HMRC for which compliance would take significant trustee time and effort.

However, HMRC’s recent guidance has clarified that most schemes will not need to register with TRS on the basis that, in practice, most schemes will not become liable for any relevant taxes. Furthermore, HMRC has stated that liability to pay income tax through PAYE on pensions in payment does not make a scheme a ‘relevant taxable scheme’.

Actions for trustees

In light of the guidance from HMRC, trustees should:

• ensure that their anti-money laundering policies and procedures remain fit for purpose in light of the Regulations and HMRC’s guidance;
• ensure that they hold accurate and up-to-date written records of the schemes’ participating employers, members and other beneficiaries;
• ensure that third parties are aware that they are transacting in a trustee capacity; and
• check with their schemes’ investment managers whether any investments give rise to a relevant tax liability and if so, be prepared to register with the TRS and submit the relevant information before the deadline each year.