PensionsDec 3 2014

Regulator gets tough on pensions scam

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The Pensions Regulator has put a stop to an arrangement that had allowed people to take money out of their occupational and personal pension schemes.

In a five-page document, Report under s89 of the Pensions Act 2004, the regulator said it had taken legal action to stop the use of several schemes it judged were “established with the main purpose of providing a cash payment to the member rather than providing retirement benefits”, and constituted misuse or misappropriation of pension scheme monies.

The regulator said it was concerned that the schemes were represented to possible members as a legitimate means of releasing the entire cash value from their exisiting pension funds.

The regulator said more than £134m was transferred between August 2011 and June 2013, with fees of 11 per cent, amounting to more than £14.7m, being charged.

The model was intended to operate by means of a member creating a company which would become their employer under one of the schemes, after which the member would transfer the value of their pension benefits.

They could then surrender their rights under the scheme, creating a surplus in the scheme which would belong to their company.

Members were told this surrender was lawful because the company would hold the surplus in trust for a separate family trust providing benefits for defendants.

The surplus would then typically be lent to the member by their company, on terms which in practice would not require payment of interest or the capital amount until the member’s death.

The regulator applied for an injunction in the high court to stop the use of the model, arguing that documents about the schemes were so clear as to the benefits to be provided that they did not create a valid trust, that if the schemes were valid they created rights for the member which could not be surrendered, and that any surrender must be in exchange for rights under the same scheme.

The court found in the regulator’s favour. The defendants, A Admin, Warwick Pensions Administration, Lincoln Pensions Administration, Baxendale Walker LLP and Paul Baxendale-Walker, have agreed to discontinue each scheme.

Members of the schemes may incur tax charges if HMRC decides an unauthorised payment has been made, and the proceedings leave the way open for people who feel they have suffered a loss to take action.

Adviser view

Kim Barrett, managing director of Hertfordshire-based Barretts Financial Solutions, said: “An IFA must survive beyond reproach and have a transparent pensions regime, so any scheme like this is not to be applauded.”