Combatting pensions liberation

Henry Ford famously said “history is bunk” and many may well agree. However, the history of small self-administered schemes (SSASs) gives significant pointers as to how an important part of the financial services market for controlling directors could reassert its professionalism.

From 1973, when controlling directors were first able to fund pension schemes through their company, to 1979 when the Inland Revenue issued Memorandum 58, in order to control the investments within SSASs, investing for personal gain was recognised as a clear abuse of the pensions system.

Memorandum 58 introduced the concept of a pensioneer trustee, a person or a corporate body, who was known to the Revenue as having knowledge of pensions legislation. Although the pensioner trustee was never formally viewed as the Inland Revenue’s watchdog on such pension schemes, in reality this was the situation. In the years from 1979 to 2006, few problems existed with SSASs, which were run by the pensioneer trustees in a manner that satisfied both their clients and the authorities.

The Finance Act 2004, effective from 6 April 2006, changed all that in two ways. Firstly, there was the removal of the requirement for there to be a professional pensioneer trustee – supposedly because of requirements of European legislation. Secondly, instead of pension schemes having to be approved, a new system of registration came in which was simple and efficient, yet had the potential for abuse.

Under the new regime, anyone could establish an occupational pension scheme so long as there was an employer registered at Companies House and an individual was prepared to put his or her name forward as administrator. Once the scheme was registered, which could be done over the internet by return, it was eligible to receive transfer values from other approved pension schemes. While HM Revenue & Customs requires the administrator to submit annual returns, there was scope for the unscrupulous to change web address and remove the ability of authorities to check up on them.

Rise in concern

Unsurprisingly, this has given rise to concerns in some quarters that SSASs are being used for pensions liberation. This is where individuals access part, or all, of their pension scheme before the age of 55, in total contravention of HMRC rules. The Pensions Regulator has stated that its biggest concern is for people who are deceived by corrupt intermediaries into receiving benefits from their pension arrangements at an early stage, without being aware there are significant tax penalties, which may ultimately lead to the potential loss of their entire fund.