Pension liberation: Latest news

Introduction

Pension liberation continues to be a major focus for pension scheme trustees faced with transfer requests from members wishing to move their assets from their current workplace pension scheme to another arrangement.

The subject also remains high on the agenda for the pensions industry at large, following the recent High Court decision in the pension liberation case that began after a police raid in May 2013, and the strengthening by HMRC of its processes for dealing with potential pension liberation fraud.

In this Alert:

• Key points 
• High Court ruling
  
• TPR’s response
  
• HMRC tightens its pension liberation processes
  
• Actions for trustees
  

Key points

• The High Court has ruled that nine schemes under investigation are “occupational pension schemes”.  This means that they fall within the jurisdiction of TPR.
• TPR has welcomed the judgment, saying that it will continue to take action against schemes where there is evidence of misuse of members’ pots.
• HMRC has updated its existing processes for dealing with pension liberation with effect from 21 October 2013.

High Court ruling

In May 2013, the City of London Police carried out a series of raids on organisations that were accused of involvement in pension liberation.  Broadly, pension liberation concerns the unauthorised use of funds transferred from an occupational pension scheme.

The case was brought by PI Consulting (Trustee Services) Ltd and Dalriada Trustees Ltd, independent trustees who had been appointed by TPR to administer the nine schemes targeted by the police.

Having analysed the key documents relating to the schemes, the Judge concluded that all nine schemes were occupational pension schemes, within the meaning of the Pension Schemes Act 1993.  The Judge focused on the substance of the schemes, not their labels, which in this case “must be disregarded or given very little weight”.

The significance of the decision is that the schemes fall within the jurisdiction of TPR and ensures that its appointment of Pi and Dalriada, as independent trustees to the respective schemes, was validly made.

It had been agreed by the parties before the court hearing that they would proceed on the assumption that the schemes to which the transfers were made were genuine.  Now that it has been decided that TPR has jurisdiction over the schemes, it is open for TPR to argue that the schemes were not genuine.

As the case focuses on the particular scheme documents that were before the court, it has limited application across the pensions industry.  It does, however, demonstrate the complexity of the issues facing trustees when considering whether to action transfer requests from members, even taking full account of TPR’s pension liberation fraud ‘scorpion’ guidance.

For a full summary of the case, please click here.

TPR’s response

In a statement issued in response to the pension liberation ruling, TPR comments that a number of powers are available to it following the judgment, and that it will continue to take action against schemes where there is evidence of misuse of members’ pots.

The powers available to TPR to disrupt pension liberation fraud include suspending and prohibiting trustees, appointing independent trustees to schemes to protect assets, freezing bank accounts and repatriating monies.

TPR’s advice to the pensions industry is to remain vigilant, having regard to its‘scorpion materials on pension liberation fraud’, and to carry out the necessary due diligence in response to transfer requests.

HMRC tightens its pension liberation processes

Meanwhile, HMRC has updated its existing processes for dealing with pension liberation with effect from 21 October 2013.  The updates include changes to:

Registration

New pension schemes must be registered using HMRC’s Pension Schemes Online Service.  When an application is made, registration will not now be confirmed on submission of the online form as previously.  Instead, HMRC will conduct detailed risk assessment activity before making a decision on whether or not to register a scheme and before providing confirmation of its decision.

Transfers

HMRC will now respond to requests for confirmation of the registration status of the receiving scheme without seeking consent from that scheme.  HMRC will provide confirmation where the receiving scheme is registered and the information held by HMRC does not indicate a significant risk that the scheme was set up, or is being used, to facilitate pension liberation.  Otherwise, a response will be issued setting out the conditions on which HMRC will confirm registration status and explain that one or both of the conditions are not satisfied.

Guidance

In a bid to continue to raise the profile of the dangers of pension liberation, HMRC has produced a fact sheet on pension liberation and tax.  Together with TPR, it has also produced an update on pension liberation setting out details of their work to combat pension liberation.

Actions for trustees

Trustees need to continue to be vigilant when dealing with transfer requests and undertake appropriate due diligence to identify potential cases of pension liberation.

In our Alert of 19 April 2013, we set out a checklist for trustees of the actions they should take if they suspect pension liberation.  Trustees who have any concerns about a particular transfer should get in touch with their usual Sackers’ contact.