Pension liberators are targeting individuals aged 55 plus but with a later retirement date in their existing scheme using a loophole in drawdown rules, pension industry experts have warned during a meeting with HM Revenue and Customs.
Members of the Association of Member-directed Pension Schemes, Association of British Insurers and National Association of Pension Funds told HMRC that liberators were encouraging savers to take the 25 per cent pension commencement lump sum, with promoter fees being taken from this, but the pension was not taken straight way by use of the drawdown rules.
HMRC responded that in these cases the pension tax rules are not being broken. Members of the trade association and pension experts from Zurich and Aviva at the meeting were told that the issue is “probably more relevant to the Financial Conduct Authority and The Pensions Regulator based on the way the option is promoted.”
Attendees at the meeting, held back in November 2013, also referred to offshore pensions being marketed for UK scheme members to transfer to, even where the scheme member is not and has no intention of residing overseas in that country.
HMRC confirmed that, in order to comply with European Fundamental Freedoms, this was a feature built into the design when the Qrops regime was put into place.
HMRC confirmed that it is looking closely at overseas schemes as part of ongoing work to combat liberation.
The industry representatives gathered at the meeting, minutes of which have only just been made public, also informed HMRC that they were worried about the timing of registration and receipt of contributions for small self administered schemes (Ssas).
Attendees explained that it was not uncommon for a Ssas to be set up and contributions paid close to the end of small businesses’ trading year to take advantage of tax incentives.
As tax relievable contributions cannot be paid until the scheme has been registered, concern was raised that any delays as a result of the new registration process to combat pension liberation could jeopardise such arrangements.
Feedback from attendees was that single member Ssas are now the “vehicle of choice for liberators”.
In response to a question, HMRC confirmed there were no plans to provide for tax relief to be available for contributions made after application but before a scheme had been registered.
Attendees asked for information about the risk rules used before registering a scheme, but HMRC was unable to provide any detail around the risk rules used.
Attendees raised the view that they would support a requirement for an independent professional trustee to be appointed for Ssas.
