HM Revenue & Customs has responded to calls from the industry to tighten up its pension scheme registration system to limit potential for liberation fraud by ditching its “process now, check later” approach and implementing a system of risk assessment prior to registering a scheme.
The revised approach, which was announced this morning (21 October) and is effective immediately, means occupational pension schemes will no longer be registered immediately upon receipt of a completed form.
Currently, schemes are registered once the relevant forms are submitted and checks are only carried out retrospectively on the activities of the scheme, or in response to specific concerns being raised.
HMRC said it will now conduct “detailed risk assessment” of activity before making a decision on whether or not to register a scheme.
To help scheme administrators decide whether to make a transfer, it will also respond to requests for confirmation of a scheme’s registration status without seeking consent from the receiving scheme.
HMRC said it will only provide confirmation where the receiving scheme is registered and the information held by HMRC does not indicate a significant risk that the scheme was set up, or is being used, to facilitate pension liberation.
Otherwise, a response will be issued setting out the conditions in which HMRC will confirm registration status and explain that one or both of the conditions are not satisfied.
The scheme registration process has come under fire in recent months as the spectre of pension liberation - or ‘unlocking’ - has grown. In particular, the ease with which occupational pension schemes can be set up has been highlighted, as has the lack of regulation or requirement for an authorised administrator for small self-administered schemes in particular.
John Lawson, head of policy at Aviva, previously told FTAdviser that the issue of pension liberation needs to be tackled ‘upstream’. He claimed that liberation represents a £600m ‘problem’ for the industry.
He cited the issue that anyone could set up an occupational pension scheme and suggested that if firms had to pay, for example, £10,000 to register a scheme this would deter most would-be frausters.
On Ssas, Mr Lawson responded to concerns raised last month that a number of providers, including Aviva, are blocking transfers to such schemes by stating that firms are having to conduct more thorough due diligence due to lax regulation.
A spokesperson for L&G, another firm cited as blocking transfers, said: “We have seen a mix of scheme types, including Ssas and Sipp, being used as a vehicle for pension transfers. The danger is that the fraudsters are likely to be skilled at moving between different product and scheme types.
“As such, the ultimate solution is likely to sit with scheme registration, both in the initial registration process at HMRC and with The Pensions Regulator identifying schemes already registered that need to be deregistered.”
HMRC said it it will continue to take “firm action” to detect and pursue those who deliberately bend or break the rules by offering schemes to liberate pension savings, stating that it will not “hesitate to de-register a pension scheme where rules are not adhered to”.
A spokesperson for HMRC told FTAdviser: “The changes to our process are part of a government wide initiative involving HMRC and other agencies aiming to detect, disrupt and deter promoters of pension liberation schemes and to ensure that individuals are aware of the true tax position.”
Individuals that ‘unlock’ their pensions are likely to face a minimum 55 per cent unauthorised tax charge unless they qualify for a limited exemption such as being diagnosed with a terminal health condition. Penalty charges can be added to take the total charge above 70 per cent.
The Financial Conduct Authority previously urged consumers to only deal with regulated financial services companies, flagging up that there is “very little” evidence to suggest any authorised financial advisers have been promoting or arranging pension liberation.
Last week, fresh concerns were raised over the lack of regulation of Ssas, as the trade body for the sector, the Association of Member-Directed Pension Schemes, revealed that a number of banks are refusing firms bank accounts - and some are even forcing firms to move to another bank.
