Prime Minister Boris Johnson has failed to acknowledge three letters from a prominent campaigner on pension scams, which propose changes to tax rules over early pension access in a bid to protect scam victims.
Last week (February 9), at a session of prime minister’s questions, Johnson said his “government and this country despise those who defraud people, and that is why we crack down on fraudsters”.
The remarks came in response to a challenge from Labour leader Keir Starmer, who had accused business secretary Kwasi Kwarteng of playing down the significance of fraud in previous comments to Sky News.
On Twitter, Margaret Snowdon, president of the Pensions Administration Standards Association, challenged the prime minister to meet her or reply to the three letters on scams she wrote to him in 2021.
‘Unfair and cruel’
A work and pensions select committee report into scams, published in March 2021, recognised that pension freedoms had put savers at a greater risk of being scammed.
Under current rules, pension holders are liable to be taxed if they, or anyone connected to them, access funds from their pension before their normal minimum pension age.
Early pension access as part of pension liberation scams represent the most common form of unauthorised payment, according to the committee’s report.
These scams involve a fraudster making false promises to encourage someone to access their pension before the age of 55, usually leaving the victim with a substantial tax bill.
Pensions scam victim Dennis Waite told the committee: “I have been pursued quite relentlessly by [HM Revenue & Customs] for tax. In fact, I have also had debt collection letters sent to my house without warning.”
Snowdon wrote to the prime minister on July 5, August 18 and December 10, without receiving a reply or acknowledgement.
In her third letter to the prime minister, seen by FTAdviser's sister publication Pensions Expert, Snowdon attacked HMRC’s pursuit of scam victims and outlined proposals to amend the Finance Act 2004 to give the body discretion over whether to tax individuals.
“You[r] government recognises that pension scams ruin lives, but HMRC persists in levying tax penalties of 55 per cent on people who were persuaded by scammers to transfer their funds to access their savings,” Snowdon said in her letter.
She recognised that the tax penalties are legal and exist to deter those who deliberately flout the rules to gain a tax advantage.
However, Snowdon observed that the rise of professional scamming has meant that in most cases, rather than gaining a tax advantage from early pension access, victims have lost the rest of their pension savings.
To add insult to injury, these victims are then taxed. Many of the advisers involved in these scams are regulated by the Financial Conduct Authority.
“HMRC punishes such victims to the fullest extent of the law,” Snowdon’s letter continues. “They could use their discretion to assess the tax differently, but they choose not to. They could decide to believe victims, but they choose not to. Instead, they demand tax penalties and are deaf to appeals for fair treatment.”
Snowdon proposes amending part of the Finance Act 2004 to allow HMRC to make an exception for innocent victims and grant them amnesties from tax penalty charges.
This, she said, would not compromise the deterrent effect of the charges for those who knowingly enter into schemes to evade tax. She estimates that her proposal would cost the Treasury around £20mn.
“There is a glimmer of recognition in parliamentary circles that taxing people who have been robbed is unfair and cruel, failing as it does to distinguish between tax evaders and victims of a scam.”
Can HMRC act with discretion?
While HMRC has attracted criticism for its pursuit of tax penalties from scam victims, the consensus is also that the body is following the law. Doubts exist over whether it could discriminate between scam victims and deliberate tax evaders.
Pensions provider Phoenix Group told the committee that HMRC does not have discretion not to apply the tax charges.
“For victims of scams, typically facilitated by organised crime, it seems entirely unfair that these people are then subjected to additional tax charges,” its submission to the committee’s report continued.
The report also cited fears that HMRC’s approach has led to a lower reporting of pension scams, with victims worried about being subject to tax penalties.
Speaking to Pensions Expert, Snowdon reinforced that the scam victims she was advocating for were not experts and had put their faith in regulated advisers to transfer into HMRC-registered pension schemes.
“It really is unfair to somehow say that they were guilty of some sort of scam practice,” she said. “HMRC just say they can’t differentiate between people, but they could actually.”
Snowdon suggested that HMRC could instead at least reduce the penalty it imposed on those claiming to have been scammed.
The Pension Scams Industry Group’s list of proposed amendments to the Finance Act 2004, which were cited in the committee’s report, included listing affected schemes that would not incur unauthorised payment charges, imposing good faith or lack of knowledge requirements for early pensions access, and amnesties.
A government spokesperson said: “We are committed to protecting people from fraud, and pension savers who are found to be victims of fraud don’t have to pay tax on money lost.
“HMRC must collect the tax due when pension savings are accessed before age 55 to prevent abuse of the generous tax reliefs provided to pension savings. Therefore it’s only right that the department collects tax where someone has used a scheme designed to avoid paying tax on early pension withdrawals.
“HMRC determines the appropriate response on a case by case basis. An amnesty cannot do this.”
No explanation was offered as to why the prime minister had not responded to Snowdon’s letters.
Alex Janiaud is deputy editor at FTAdviser's sister publication Pensions Expert
