Pensions liberation scams easily solvable by Government, says Linklaters
Pensions liberation scams - where scheme members are encouraged to transfer their benefits to another scheme in circumstances that are not in their best interests - continue to present problems.
The difficulty for the trustees of the member’s existing scheme is that the member will typically have a statutory right to transfer, even if the trustees suspect that the proposed receiving scheme is a pensions liberation vehicle.
Last year’s Finance Act sought to address the issue to a limited extent, by making it easier for HMRC to de-register schemes and harder for schemes to become registered. The rationale is that (certain overseas schemes aside) the statutory right is normally only to transfer to a registered pension scheme.
Tim Cox, Linklaters pensions partner, says there is a better way:
“Trying to address the problem by tightening the registration requirements is a blunt instrument. Many pensions liberation vehicles will already be registered, with no apparent warning signs that HMRC should consider de-registering them.
“Instead, HMRC should publish a list of those registered schemes that it is content to see receiving transfers. The question of whether a member has a statutory right to transfer to a given scheme would then depend on whether that scheme was on the list. If the scheme is listed, then the member can require a statutory transfer; if it isn’t, the member can’t (unless the trustees agree). The trustees would still have discretion to transfer to other registered schemes but could not be required to do so.
“That’s fairer than the current position, where transferring schemes can find themselves having to investigate the proposed receiving vehicle due to circumstances that are not of their making. It should be relatively easy for HMRC to check whether to put a scheme on the transfer list using existing tax information about the scheme and the sponsor or information from the FCA.
“A minor tweak to the DWP regulations – just a few words – is all that is needed for this to work. The new pensions minister has a well-earned reputation for championing members’ interests, and we hope that this is something she will be looking to resolve during her first few months.”
Tim Cox added:
“This will only work if trustees are entitled to rely on the list and look no further. We wouldn’t want to see a repeat of what happened this week, when HMRC announced that it couldn’t guarantee that the schemes named on its “list of ROPS [recognised overseas pension schemes] notifications” were necessarily ROPS, and might chase UK schemes for unauthorised payment charges if HMRC later decided that the listed scheme should not have been on the list!”