03.12 – Retirement Accounts and Products

All retirement accounts or products established under a:

  • UK registered pension scheme under Part 4 of the Finance Act 2004;
  • Non-registered pension arrangements whereAnnual contributions are limited to £50,000; and
  • The funds contributed cannot be accessed before the age of 55, except in circumstances of serious ill health

are not Financial Accounts, and, therefore, a Financial Institution will have no reporting obligations under FATCA in respect of these accounts or products. For clarification, this applies to both the accumulation and decumulation phases of a pension scheme, contract or arrangement.

Registered pension scheme

A registered pension scheme is a pension scheme or contract that is registered with or deemed registered with HMRC. Any pension scheme or contract that had tax approval on 5 April 2006 (or whose tax approved status was granted on or after 6 April 2006, but was backdated so that the scheme was in effect approved on 5 April 2006) automatically became a registered pension scheme from 6 April 2006.

A deferred annuity “buy-out” contract that secures benefits that have arisen under a registered pension scheme is treated as a registered pension scheme from the date it is purchased.

Accumulation phase

The accumulation phase is the accumulation of savings (or accrual of benefit) in a registered pension scheme or other pension arrangement

  •  For registered pension schemes this includes:
    • Individual Personal / Stakeholder Pension Policy
    • Group Personal / Stakeholder Pension Policy
    • Self Invested Personal Pension Arrangement
    • Free Standing Additional Voluntary Contribution Schemes
    • Defined Benefit Schemes
    • Defined Contribution Occupational Schemes
    • Group Money Purchase Schemes
    • Executive Pension Schemes

Decumulation phase

The decumulation phase is the use of those accumulated funds to take a pension for the remainder of the individual’s or their dependant’s life.

“Pension” is defined under Section165 (2) Finance Act 2004, to include an annuity or income withdrawal as well as a pension that is paid directly from the pension scheme.

The following types of annuities are commonly pension annuities (that is to say funded with the accumulated savings from a registered pension scheme):

  •  Lifetime Annuity
    • A lifetime annuity is a contract between Insurance Company and a pension scheme member under which the member hands over all or part of their pension fund to the Insurance Company which agrees to pay out regular income to the scheme member for the remainder of that person’s life. This includes all types of annuity that meet the requirements for being a Lifetime Annuity in paragraph 3 of Schedule 28 FA 2004.
  •  Scheme Pension
    • A scheme administrator may secure their liability to pay the member a scheme pension by purchasing an Annuity Contract from an Insurance Company or the pension may be paid directly from the scheme.
  •  Impaired Life Annuity
    • An impaired life annuity pays an income for life in the same way as a lifetime annuity or scheme pension. However, it pays a higher income to those suffering from certain medical conditions on the basis that they have a reduced life expectancy.
  •  Enhanced Annuity
    • An enhanced annuity also pays an income for life in the same way as a lifetime annuity or scheme pension.
  •  Short term annuity
    • A short-term annuity is a contract between an Insurance Company and a pension scheme member under which the member hands over part of their drawdown pension fund to the Insurance Company which agrees to pay out regular income to the scheme member for a term of up to five years.

Cross-border pensions

When a UK Financial Institution (regulated in the UK and subject to UK laws) writes pension business outside of the UK directly (though not through a permanent establishment in the country the person is resident in) this will not be a Financial Account if:

  • the pension is excluded from the definition of Financial Account under another FATCA Agreement between the US and another Partner Jurisdiction, and
  • the account or product written by the UK Financial Institution is subject to the same requirements and oversight under the laws of such other Partner Jurisdiction as if such account or product were established in that Partner Jurisdiction and maintained by a Partner Jurisdiction Financial Institution in that Partner Jurisdiction.

Example 1

A UK Insurance Company directly writes pension business into the Netherlands, but it has no permanent establishment in the Netherlands. The pension account that is offered fully complies with Dutch pension and tax law, and consequently would be exempt under the Dutch/US IGA if the Financial Account was held by a Dutch-based Insurance Company.

If the account or product does not meet these criteria, then this will be a non-registered pension in the UK. It may still be an exempt account if:

  • Annual contributions are limited to £50,000; and
  • The funds contributed cannot be accessed before the age of 55, except in circumstances of serious ill health.

“Holloway” business

A with-profits permanent health insurance contract where issued by a friendly society within the meaning of the Friendly Societies Act 1992 (c. 40).

This includes a long-term insurance contract offered or effected by a friendly society under the “Holloway system”, providing permanent health benefits and, also, investment benefits, where the investment benefits:

(a) are derived from surpluses accrued by the friendly society and apportioned to policyholders; and

(b) are payable to policyholders at maturity, on retirement, on death, or as otherwise specified by contractual provisions or individual society rules.