Below is a Summary of the main features of a pension and how they relate to Taxation.
Please note that the Practice Notes are currently being updated to reflect recent legislative changes, including the lower tax relief available in 2018. The amended notes will be published in due course.
Contributions or premiums
- Members no longer need to request a certificate of unused contribution.
- A member may contribute any amount they wish without approval from the Guernsey Income Tax.
- Tax relief will be limited to the lower of 100% of taxable income or £35,000 (2011 - 2017 limit was £50,000) (please refer to Statement of Practice M48 (under "Practitioners and technical information") for further explanation of the retirement annuity allowance for married couples). This limit applies to the overall contributions or premiums made to all Approved Schemes (Retirement Annuity Trust Schemes ("RATS") and Retirement Annuity Contracts ("RACs") and Approved Occupational Pension Schemes.
- Further restrictions on tax relief will apply if you are subject to the withdrawal of personal and other tax allowances for high earners - for further information please follow this link.
- If the member has made a contribution but does not take full advantage of tax relief available on their contributions or premiums in any year, they may carry this unused relief forward for up to 6 years (starting from 2011) subject to certain limitations.
Contributions by employer(s)
- Employer(s) contributions to RACs or RATS are neither taxable as a benefit, nor claimable by the employee(s).
- The member may take the benefits from the pension between the ages of 50 and 75 but cannot defer them beyond 75 commencement; earlier than age 50 may be allowed if due to incapacity or agreed by the Director of the Revenue Service.
- The member may take a tax-free lump sum of up to 30% of the fund value up to the specific limit (with effect from 1st January 2019 this limit is £198,000). Tax is due if the sum taken is more than £198,000.
- Where the Fund Value is trivial in amount, or the fund Value in respect of a spouse's, child's or dependant's pension is trivial in amount, or retirement is due to serious ill health, the entire fund value may be paid as a lump sum.
- It is permissible to commute a fund value which is trivial in amount at any age. The full amount of the trivial commutation is taxable at the standard rate (currently 20%) if commutation occurs before age 50 and at half the standard rate if commutation occurs on or after age 50. However, the trivial commutation of a spouse's, child's or dependant's pension on the death of a member is taxable at the standard rate regardless of age.
- It is not necessary to seek prior approval from the Director before commuting a fund value which is less than £15,000. However, before commuting a fund value of greater than £15,000, Trustees should:
- obtain a declaration from the individual confirming that the fund value may be deemed trivial in amount (i.e. the individual is age 50 or over and the aggregate of the individual's fund values (including any previous trivial commutations, taken at face value) from all approved occupational pension schemes and approved schemes does not exceed £30,000); and
- seek clearance from the Director.
- Tax should be remitted to the Director within 30 days of the commutation being paid - follow this link for details on how to make payments of income tax.
- The term used to define how much is held within the pension and will be the gross amount (i.e. value of the pension before any money is paid out).
- If a member has a pension with a fund value up to £15,000 commutation on grounds of triviality may be made without approval from the Revenue Service and without taking into account any other pension(s). If the member is under 50, tax would be charged at the standard rate of 20%. If the member is over 50, the tax charge would be 10% (half the standard rate).
- If the member is 50 or over and the fund value on that pension is between £15,000 - £30,000, the Revenue Service requires the gross fund value of all pensions held, and will review and determine whether the payment can be allowed under triviality. If the total (gross) fund value of all the pensions exceeds £30,000, triviality will not be allowed, unless due to serious ill health.
- Changes to permit greater flexibility for funds derived from overseas inward transfers were approved at the States meeting held on 29 September 2015 (you can view the relevant Ordinance here), to be effective from 2 October 2015, and Trustees/Administrators should be aware that these changes supersede any restrictions contained in their original approval letters. Scheme members should contact their Trustees/Administrators, in the first instance, to discuss the options open to them. Follow this link for a note prepared by Babbe on how the proposed changes may affect you.
Section 154A schemes
- Following States approval of The Income Tax (Pension Amendments) (Guernsey) Ordinance, 2017 the Director of the Revenue Service may grant formal approval under section 154A of the Income Tax (Guernsey) Law, 1975 ("the Law") to:
- A superannuation fund to which section 40(o) of the Law applies
- A Retirement Annuity Contract or Retirement Annuity Trust Scheme to which section 40(ee) of the Law applies
- Such other fund, contract scheme or trust as may be prescribed under section 40 of the Law
- Please note that end of service gratuity schemes are not considered to meet the requirements for pension schemes seeking approval under section 154(A).
- The application form (form 681) and Practice Notes for section 154A schemes are now available from "Printable Forms" and "Document Downloads" below, respectively. The Pension Composite Return (form 704), which may be used to submit pension scheme returns, either on an individual or composite basis, is also available from "Printable Forms" below.
- Any scheme that has approval under section 154A is required to submit the following information with the pension return:
- Signed Accounts which clearly show the fund value
- A schedule detailing payments made by the scheme to the members or any other person, including the name, address, date of birth (if applicable) and nationality/place of residence of the person receiving a payment
- Whilst the filing deadline will usually be 30th November following the end of the year of charge, due to the late development of the return, the Director requires the submission of the 2016 pension return by 31 May 2018.
- Further guidance will be issued shortly, confirming that where a scheme:
- meets all the requirements of either a Broad or Narrow Participation Retirement Fund, and
- reports relevant information to the tax authority, and
- is subject to regulation by the GFSC
- it will benefit from an exemption under the Income Tax (Approved International Agreements) (Implementation) (Common Reporting Standard) Regulations and is not subject to reporting.
Common Reporting Standard
- Where a pension scheme approved under section 150, 154A, 157A or 157E:
- meets all the requirements of either a Broad or Narrow Participation Retirement Fund (for more information click here [insert link to www.gov.gg/crs], and
- reports relevant information to the tax authority, and
- is subject to regulation by the GFSC,
- it will benefit from an exemption under the Income Tax (Approved International Agreements) (Implementation) Common Reporting Standard Regulations and is not subject to reporting.
- To meet the requirement of reporting relevant information to the tax authority, the pension scheme will need to annually submit the following information by 30th November following the year of charge (with an extension to 31 May 2018 in respect of year of charge 2016):
- signed accounts which clearly show the fund value, and
- a schedule detailing payments made by the scheme to the members or any other person, including the name, address, date of birth (if applicable) and nationality/place of residence of the person receiving a payment.
- A pension composite return is available from "Printable Forms" for this purpose, which is a requirement for section 154A schemes and will be rolled out to other approved schemes in due course.
- Application for Approval of Pension Scheme Application for Approval of Pension Scheme (form 681) [297kb]
- Application for relief for Guernsey pensions (UK claimaints) Form 675 [421kb]
- Application for relief for Guernsey pensions (non-resident other than UK claimaints) Form 676 [425kb]
- Trustee confirmation form Form 684 [202kb]
- Retirement Annuity Member Certificate Form 685 [205kb]
- Pensions composite return Form 704 (2016) [317kb]
- Pensions composite return Form 704 (2017) [316kb]
- Pensions composite return Form 704 (2018) [308kb]
- Please note that the Practice Notes are currently being updated to reflect recent legislative changes, including the lower tax relief available in 2018. The amended notes will be published in due course.
- Frequently asked questions Pensions and retirement [249kb]
- Guernsey Practice Notes (occupational schemes) (April 2015) Guernsey Practice Notes (Occupational) [290kb]
- Guernsey Practice Notes (Retirement Annuity Contracts and Retirement Annuity Trust Schemes) (October 2015) Guernsey Practice Notes (Retirement Annuity Contracts and Retirement Annuity Trust Schemes) [266kb]
- Guernsey Practice Notes (Exempt Trusts and Contracts) (March 2012) Guernsey Practice Notes (Exempt Trusts) [88kb]
- Guernsey Practice Notes (section 154A schemes) (February 2018) Guernsey Practice Notes (section 154A schemes) [435kb]
- Guernsey Practice Notes (up to and including 2010) Guernsey Practice Notes (up to and including 2010) [157kb]
- Retirement Annuity Trust Schemes Code of Practice Retirement Annuity Trust Schemes [85kb]
- Legislation Review - summary or proposed changes (July 2010) Legislation Review - summary of proposed changes [143kb]
- Retirement Annuity Trust Schemes (RATS) - "administered" in the context of approval under section 157A(4) of the Law "Administered" in the context of approval under s.157A(4) of the Law [130kb]
- Income Tax (Pension Amendments) (Guernsey) Ordinance, 2012 and Income Tax (Pension Amendments) (Guernsey) Ordinance, 2015
- Statement regarding QROPS Statement re QROPS [28kb]
- Statement of Practice M48 - Retirement Annuity allowance for married couples M48 - Retirement annuity allowance [86kb]