Budget 2014 – Pension Liberation Powers For HMRC

HM Revenue & Customs (HMRC) has won new powers to fight pension liberation fraud in Chancellor George Osborne’s Budget 2014.

Alongside Osborne’s Budget speech, HMRC has published a notice of new pension rules to be included in the Finance Bill 2014.

The rules will allow HMRC to refuse to register a pension scheme if HMRC believes:

• The proposed scheme administrator is not a ‘fit and proper’ person to run a pension fund

• The pension fund is not set up to provide pension benefits

The proposals will also widen HMRC’s powers to request more information about pension schemes applying for registration.

Bogus pension firms

Providing false information will be punishable by fines of up to £3,000.

HMRC will also get new powers to refuse registration of a pension scheme if the fund is suspected as a front for pension liberation.

Pension liberation is when financial advisers set up a bogus pension fund to allow people with retirement savings to draw down on their cash before their official retirement age.

In some case, the pension liberation schemes have whisked funds transferred in offshore.

“These schemes typically take arrangement fees of up to a third of the funds value and let the member draw the rest as cash,” said an HMRC spokesman. “However, many are missold because the advisors fail to tell their customers that a 55% tax charge is also due on an unauthorised withdrawal.

“Often the money is spent when the penalty is due, pushing the pension member into a worse financial position.”

Closing pensions loophole

The Budget papers say the measure is part of the government’s campaign to make sure people claiming pension relief actually draw their tax-relieved contributions as a pension.

“The changes will give HMRC powers to identify and tackle pension schemes which are being or are intended to be used as liberation vehicles. The measure will also close a loophole used in a widely-marketed avoidance scheme, and remove tax obstacles to effective regulatory interventions instigated by the Pensions Regulator,” said a Treasury spokesman.

The latest official figures posted by the Pensions regulator revealed around suspected pension liberation schemes took in £600 million over the past year.

Currently, the regulator is investigating 46 pension liberation cases, while the Financial Ombudsman is also considering a number of complaints against pension providers refusing to transfer funds to suspected liberation schemes.