Budget 2014: HMRC gains new powers to tackle dodgy “pension liberators”

By Jamie Waddell, 4 April 2014

At the latest Pension Stakeholder Forum hosted by HMRC, pension firms highlighted the increasing prevalence of “pension liberators” targeting expat-specific offshore pension schemes such as QROPS. Refreshingly, it appears that new legislation has quickly been implemented to crack down on the growing problem.

Pension liberators offer people the chance to cash in the money invested in their pension scheme before reaching the minimum age of 55 – but what they don’t mention is that the penalties and charges payable mean that you’ll only receive a small fraction of your pension’s value. If you’re unaware of the risks associated with pension liberation and the action being taken against it, you can find a detailed breakdown on the QROPs Review website.

The Pensions Regulator has previously stated that “we have seen a variety of different liberation models using vehicles including defined contribution, SIPPs, SSASs and overseas arrangements”, and the forum highlighted that, as a consequence of increased pressure from HMRC and The Pensions Regulator on UK-based schemes, they have seen a marked increase in pension liberators misleading savers (both expat and non-expat alike) into transferring their pensions into dodgy schemes misrepresented as QROPS.

A spokesperson from HMRC has said: “HMRC are monitoring all cases, whether within or outside the UK, extremely closely and won’t hesitate to act where there is any abuse of the tax rules.”

Thankfully, this process will be greatly expedited by the new powers laid out in Chancellor George Osborne’s recent budget. Since 20 March 2014 HMRC has had broader powers in the registration and deregistration process for pension schemes of all kinds. HMRC can now request more detailed information from registering schemes, and scheme administrators will have to pass a “fit and proper person test” before their scheme may be registered. HMRC may also refuse a scheme if it believes that it is “established for purposes other than pension benefits”.

If a registering scheme is found to have provided misleading or false information, HMRC may now impose fines of up to £3,000.

James Cartwright, Senior Product Analyst at QROPS Review, was pleasantly surprised with the speedy action taken to curtail the growth of liberation of offshore pensions:

“Pension liberation has had a damaging effect on the pension industry and the lives of savers for years now, despite TPR (The Pension Regulator), HMRC and the affiliate agencies’ best efforts to eliminate the practice. Granting HMRC greater powers to stop fraudulent schemes from ever registering with HMRC in the first instance, whilst unfortunately making it more difficult for legitimate schemes, is a necessary evil to protect savers both onshore and off.”