The tax man is demanding millions of pounds in tax and penalties from victims of pension liberation scammers.
HM Revenue & Customs (HMRC) is sending out letters to savers aged under 55 who accessed broke the rules to access their pension cash.
They must pay a 55% tax charge on the money they took out of their pension pots, plus penalties of up to a further 25% of the withdrawal.
On top of this, the scammers fleeced many of the savers of their retirement cash by charging them fees of between 20% and 33% of the value of their funds to transfer them into schemes where they could drawdown their cash.
Pension rules state that no one aged under 55 years old can take money from their pension except in exceptional circumstances, which is generally regarded to mean that they are terminally ill.
Penalties and fees add up to more than savings
It is not illegal to take the money – but HMRC will demand any tax relief on the contributions is repaid and impose a penalty as well.
For someone with a £100,000 pension pot who agreed to withdraw cash under the advice of a pension liberation scammer, the fees charged by the adviser plus HMRC penalties could add up to 108% of the value of their pension fund.
The likelihood is many pension liberation victims do not have the cash to repay HMRC because they only entered into the arrangement because they were in desperate financial straits.
The current batch of letters are going out to pension savers who took cash in the 2011-12 financial year.
Suspended payments
Most pension liberation scams were at their height in more recent tax years and the fraudsters are thought to have netted around £500 million.
“The law does not let us waive the charges,” said an HMRC spokesman. “We are as reasonable as we can be, but as sympathetic as we are, the matter still has to be sorted out.”
HMRC is telling the savers that they can appeal the tax demands, as long as they act within 30 days. Payment of the demand is suspended pending the result of the appeal, but interest and other charges may arise from the delay.
“The rules are applied fairly and consistently to everyone,” said the spokesman.” We appreciate some people may have made a genuine error. The best thing to do is to talk to us as soon as you receive a letter.”
