Pensions – if it sounds too good to be true…
Normally we try to stick to “proactive” advice relating to actions to take to improve business performance or adding value, but for once we’re going with a more cautionary tone and discussing something to steer clear from.
In the last few months HMRC, the Pensions Advisory Service and the financial press have highlighted the increasing number of people who are being encouraged by unregulated promoters to sign up to pensions “busting” or “liberating” arrangements. In the current economic climate, it is easy to understand that individuals may see their pensions as a locked up sum of cash which would ease many problems if they could access it.
As a professional services firm who provide both tax and pensions advice we are ideally placed to highlight to our clients that this is definitely a case of “if it sounds too good to be true, it is!” and then tell the client to politely chase the promoter off the premises.
However, a quick press search provides plenty of unfortunate stories of people who have been encouraged to transfer sums from their pensions into arrangements which claim to be able to unlock the cash and provide it to the individual, minus a tidy sum for the “liberating” provider of course.
Why the stories are unfortunate is that the outcome tends to be depressingly similar, with the outcome as follows:
– HMRC are made aware of the transfer by the original pension scheme provider and enquire into where the money has gone to
– On enquiry the “scheme” is shown not to work by HMRC
– A 55% charge on the amount transferred is then applied by HMRC, payable by the individual, because amounts have been moved outside a registered pension scheme on the instruction of the individual but in contravention of the tax provisions governing pension schemes.
Both HMRC and the Pensions Advisory Service are seeking to raise awareness of the issues surrounding these schemes because the individuals often only become aware of the true cost when HMRC contact them. The loser from these arrangements is consistently the person who has been originally promised that unlocking their pension is the solution to their problems.
The final outcome for the person who has been persuaded to participate in such a scheme is typically that, having paid the fees to the provider and the 55% charge to HMRC, the vast majority of the pension scheme “liberated” will have been consumed. There are plenty of examples of such schemes actually costing the individual more than their pension and the promoter having disappeared when pursued.
Both HMRC http://www.hmrc.gov.uk/pensionschemes/liberation.htm and the Pensions
Advisory Service http://www.pensionsadvisoryservice.org.uk/media/826600/members_leaflet.pdf have each issued guidance on this and HMRC’s now concludes with the following:
If you have any suspicions that a person or pension scheme may be engaging in a pension liberation scam, you should contact Action Fraud on 0300 123 2040.
As HMRC say in their guidance, if it sounds too good…..