HMRC has published a policy paper outlining proposed changes to tax legislation to enable collective money purchase (CMP) pension schemes to operate as UK registered schemes.

The legislation for CMP schemes, previously known as collective defined contribution (CDC) schemes, was introduced in the Pension Schemes Bill, which has passed through the House of Lords and will move onto the House of Commons later this year.

From April 2021, the legislation allowing CMP schemes to operate in the UK is scheduled to take effect, and the proposed changes to tax legislation will tax effect from 6 April 2021.

HMRC noted that its measure to provide changes to tax legislation was necessary to avoid unintended tax consequences to members and schemes once CMP schemes can operate.

If tax laws were not amended for their introduction, any payment to new CMP schemes may have led to unauthorised payment charges for the scheme and member.

Furthermore, it may have prevented CMP schemes from registering for tax purposes, meaning that tax relief would not be available and the scheme could not be used for auto-enrolment purposes.

The tax legislation will be introduced in Finance Bill 2020-2021 and will allow CMP schemes access to tax relief and certain exemptions, such as from tax for certain lump sum benefit payments and lump sum death benefits.

HMRC estimated the changes would have not have any significant economic impacts or impact on the exchequer.

However, it did say the legislation would have a “negligible impact” on pension scheme administrators and employers who decide to use CMP schemes.

HMRC noted: “One-off costs will include familiarisation with the change and advising individuals affected. There are not expected to be any continuing costs.

“This measure is not expected to impact on civil society organisations.

“Customer experience is expected to stay broadly the same because enabling the new pension scheme to operate as a UK registered pension scheme will not change when and how a pension scheme will need to interact with HMRC.”

It estimated that necessary changes to HMRC’s IT systems to support the implementation of the tax changes would cost around £2.5m.

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