HMRC holds internal workshop on pension scam tax amnesty proposals

HMRC has agreed to an internal workshop to discuss a legislative change to give an amnesty to victims of pension scams, especially in cases of pensions liberation, the Pension Scams Industry Group (PSIG) has confirmed.

In its written evidence to the Work and Pensions Committee (WPC), PSIG argued that tax rules should be changed to give HMRC the power or discretion to remove the tax penalties for scams victims and for transferring schemes for payments made or received before 1 January 2014 by effectively treating them as authorised.

It emphasised that none of the options outlined in its submission would create a precedent in HMRC’s legitimate claim against tax evaders, arguing that an amnesty for the Ark victims alone would be a “very positive gesture” to the around 600 victims.

Whilst it acknowledged that the proposed solution would mean a cost to HMRC in terms of lost revenue, it emphasised that this would be limited, as the proposal is for a targeted time bound amnesty.

In particular, it estimated that, assuming 1,000 people are impacted in the period and assuming an average transfer value of £100,000 and payments received by the members of £25,000 each, the tax given up would amount to £10m, based on £25m in payments, taxed at 40 per cent.

For those suffering a 15 per cent surcharge and for scheme sanction charges, meanwhile, the additional tax given up could be around a further £10m, representing a total cost of £20m.

"In the scheme of tax revenue, this is a relatively small sum. It would correct a grave
injustice and avoid people falling back on the state due to hardship in retirement," it stated.

PSIG have also suggested time limiting an amnesty to transfers and payments pre-February 2014, noting that this date precedes the Scorpion campaign, and holds "more significance" for industry, by marking a time when there should have been greater awareness of the risk of liberation when considering whether to allow a pension transfer.

It stated that the "most logical means" of addressing the proposed amnesty would be via an amendment to the 2004 Finance Act that sets out unauthorised member payments regime, coupled with preparation of accompanying regulations to deal with the detail of the amnesty.

In addition to this, the group emphasised that there will only be a "finite number" of schemes and members affected by the proposed changes, stating that the "cleanest and fairest" way forward would be to disapply the unauthorised member payments regime in relation to these.

It stated: “This would recognise that there was a particularly stark period during which there was a problem with pension liberation/scam schemes, that this arose primarily through individuals being exploited at a time of economic uncertainty, coupled with scammers exploiting the relative ease with which a pension scheme could be set up and registered with HMRC prior to the more recent changes brought in to the scheme registration process.

"The scope for allowing pension liberation has been significantly reduced as a result of legislative change as well as through much improved industry awareness that should alert most pensions providers and trustees to the dangers of a transfer when a member refers to receiving a payment.

"This was, therefore, an exceptional period, and the proposed legislative change does not risk setting a precedent or encouraging future pension liberation models as there would never again be the same justification for allowing an amnesty like this.

"Indeed, it would be unfair to allow members who were unfortunate enough to get caught up in liberation to be penalised as a result of what were in effect legislative gaps and a lack of industry awareness."

The group also emphasised more broadly that HMRC should not assume that ordinary people understand complex pension regulations, especially where HMRC themselves have “failed to find a scheme wanting”.

“Under its Tax Payers Charter, HMRC is expected to treat its customers as honest and assume they are telling the truth, unless HMRC have good reason to believe otherwise,” it added. “Innocent victims of scams should be permitted this courtesy.”

Written evidence from the National Federation of Occupational Pensioners echoed this, highlighting gaps in member knowledge, and arguing that pension scheme providers should take more responsibility for communicating with members, including issuing warnings around pension scams.

Indeed, a member survey included in the submission revealed that and 29 per cent of respondents thought that the government should do more, whilst 71 per cent of thought that The Pensions Advisory Service should play a greater role, and 57 per cent thought pension providers should.

The survey also found that whilst nearly all (98 per cent) of respondents were aware that scammers had been targeting pensioners in relation to pension freedoms, 53 per cent said they would not know who to contact to report a pension scam.

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