Financial secretary to the Treasury David Gauke has ruled out a tax amnesty for members of the Ark pension schemes.
He was speaking during a debate on the issue requested by Blackburn MP Jack Straw, who spoke of a constituent who was facing having to pay £32,000 in tax on money released from his pension.
Mr Straw, temporarily sitting as an independent MP, said: “I hope that in this short debate the minister can clarify what the future holds for Mr Smith and other members of the Ark schemes.
“What Mr Smith most wants is to be put back to the status quo ante. In other words, he refunds the total of what he has received from Ark – £58,000 – and it is invested by respectable trustees in the usual way, and the benefits of his pension pot then become available to him, in the usual way, from the age of 55.
“Of that sum £26,000 would be paid direct by him and the other £32,300, which is currently held in a suspense account by HMRC, would be paid by HMRC to the new trustees.”
Mr Straw told the House of Commons that Mr Smith, who is in his 40s, started saving aged 18 and built up a pension pot of £112,000.
However, after being made redundant in 2010 he saw an advertisement promising to “release 50 per cent of his pension tax-free” under a scheme that claimed to be registered with Revenue & Customs and The Pensions Regulator, and joined the Ark scheme.
But Conservative MP Mr Gauke ruled out any amnesty, though he admitted it was probably unfair.
He said: “In the situation as he describes it, it is hard not to be sympathetic to an individual placed in that position.
“However, the law is very clear that a loan payment of this sort constitutes a ‘payment’, and certain consequences follow.
“Although this might be unfair – I am sure that it is – on the right honourable gentleman’s constituent, others who are acting in not quite such a degree of good faith might attempt to liberate, as it were, their pension in the hope that it does not get picked up, and in the knowledge that if it does, they are in no worse a situation.”
Dennis Hall, chief executive of London-based Yellowtail Financial Planning, said: “The government’s position is the right one because it doesn’t open you up to allegations that you have bent the rules for one group but not another.
“As harsh as it may sound, the Ark victims should be lobbying to change the law rather than go around it.”