HMRC is scrutinising Qualifying Recognised Overseas Pension Schemes (QROPS) and other offshore retirement plans as pension liberation moves offshore.
Pension firms have told HMRC that pension liberators were marketing QROPS and other offshore pensions as a way of accessing cash lump sums early, even though the retirement saver had no intention of moving outside the UK.
“We can confirm that overseas schemes are being closely looked at as an ongoing part of our campaign against pension liberation,” said HMRC.
The revelation came at the latest meeting of HMRC’s Pension Stakeholder Forum, a regular meeting between the tax man and industry insiders.
The meeting was also told pension liberation firms have changed tack after HM Revenue & Customs (HMRC) recently changed retirement saving rules to try and thwart the practice.
Liberation loophole
Instead of targeting retirement savers under 55 years old, pension firms have told HMRC that pension liberators are now looking at older savers who cannot draw down their tax-free lump sum until they are 65 years old.
Pension firms told HMRC that pension liberators were transferring pensions and passing on the 25% tax-free lump sum less arrangement fees even though the saver was not entitled to take the money until they were 65.
HMRC responded at the meeting that this was not illegal and a matter for pension and adviser regulators based on how the scheme was promoted.
The forum also heard that small self-administered schemes (SSaS) were now the pensions of choice targeted by liberators as the firms regarded SSaS had slacker rules than other schemes.
HMRC is considering changing pension rules to make sure an independent professional trustee is appointed to monitor how SSaS schemes are run to avoid rule-breaking.
Pension switching campaign
Pension liberation is when a pension is moved from one provider to another in order to release the funds early.
Generally, retirement savers cannot access their funds until they are at least 55 years old, but pension liberation schemes allow savers to break the rules.
The deal typically comes with a high arrangement fee and fines of 55% of the pension fund value for breaking the rules from HMRC.
HMRC, the Financial Conduct Authority and The Pensions Regulator have tried to stop pension liberation by tightening up the rules and taking some schemes to court over recent months.
However, HMRC reckons more than £600 million has been transferred by pension liberation schemes in the past year despite the crackdown.
