Guest comment: Light at the end of the scams tunnel?

The Work and Pensions Committee (WPC) inquiry is rightly considering the devastating impact of pension scams on victims. PSIG has been calling for help for victims for some time and in early 2019 we proposed a change to tax law to give HMRC discretion in one particular aspect of scams – the pension liberation model.

Although this model has largely been shelved, the plight of its many victims should not be forgotten. HMRC automatically levies a tax penalty on pension liberation victims, because they received some cash back early after transferring their pension benefits to a scam scheme.

Technically this is correct, but it is a blunt instrument, unfit for the age of the professional scam. Victims of pension liberation schemes believed the advisers who misled them, lost their pensions and suffer additional pain from tax penalties.

Another injustice is that, unlike every other type of fraud, pension scam victims have little or no access to compensation for the losses.

But things are changing, or to paraphrase Prime Minister, Boris Johnson, the toot of the bugle can be heard in the distance.

We have asked for an amendment to s164 (authorised member payments) of Finance Act 2004, but our requests have fallen on deaf ears. We have pleaded with HMRC and Treasury, even appealing directly to the Chancellor, but to no avail. A glimmer of hope has come with the WPC and its inquiry and its genuine interest in righting wrongs.

Another beacon is the largely unnoticed judgment handed down in the High Court on 6 November, which I expect will have a significant impact on pension liberation cases. It was about eligibility for the Fraud Compensation Fund (PCF) run by the Pension Protection Fund (PPF).

Only occupational pension schemes that suffer losses due to fraud are eligible for compensation from the fund. No claims have yet been successful, but there was doubt as to whether or not a scheme used for pension liberation could be an occupational pension scheme.

Dalriada, as appointed independent trustee to such a scheme, and the PPF made opposing arguments to test the definitions. They also argued on what liabilities and expenses would be valid losses. These are important questions, because if trustee expenses are not eligible for compensation, there would be no incentive to try to recover assets, to communicate with members and to wind up the funds in an orderly fashion. If such a scheme was not an occupational pension scheme, the regulator could not appoint trustees to it.

The devil is in the detail and in future decisions to be made, but the judgment points to most so-called liberation schemes being capable of being eligible for compensation from the FCF. This positive news for hundreds of victims.

It’s not all plain sailing because a liberation scheme will need to show that it was not a sham from the outset (ie, that all the parties knew it was bogus) and then establish whether or not the losses were due to dishonesty or just bad management. Very few pension liberation cases are likely to be shams, because the sheer number of members enticed into them challenges the idea of collusion. So the question will come down to the nature of the losses, and it will all take time.

The judgment is important, but it raises further questions:

- It only relates to pension liberation schemes, not scams involving personal pensions, which is today’s preferred vehicle.

- Members who received cash early from the schemes will still be subject to tax penalties and this needs to be addressed, so we cycle back to the proposed tax amendment sitting with Treasury.

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