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Hornbuckle hits out at Talbot & Muir

What are the consequences of intentionally stripping out money from a registered pension scheme? The immediate financial penalty, the imposition of an unauthorised payments charge on the member and a scheme sanction charge against the pension administrator, is pretty obvious. But this leaves the ‘elephant in the room’ – HMRC’s attitude towards any firm actively marketing a clear willingness to deliberately breach the current pension rules.

Money Marketing recently reported the offer by Talbot & Muir to allow any SIPP or SSAS client to withdraw up to 25 per cent of their pension fund each tax year, in our view a cut and dried case of ‘pension busting’. The member has to shoulder not just a 40 per cent unauthorised payment tax charge but also the 15 per cent scheme sanction charge levied on the administrator too.

The firm’s justification is that scheme members may be happier paying a combined 55 per cent rather than face a potential 82 per cent charge on the residual fund should they die while in an alternatively secured pension. The message is ‘go ahead and ride roughshod over the rules if they don’t suit you’.

This sounds a lot cleverer than it really is. There isn’t a pension scheme administrator in the land who didn’t twig months ago they could potentially generate business by taking advantage of rules that are widely perceived to be both poorly thought out and grossly unfair. Most reacted responsibly by calling on the Government to rethink the rules. No-one sought to exploit the anomaly for commercial gain.

Now we have a firm doing exactly that and, in the process, poking the Revenue with a sharp stick. The taxman knows that the member can’t access their pension fund in this way unless the trustees and administrators are complicit. This is unlikely to go unnoticed and it wouldn’t be surprising if the HMRC have already pencilled in a diary note to at some point take a closer look to see which administrators are promoting similar abuses.

Although the member may ultimately pick up the tab, the scheme sanction charge is levied against the administrator – a black mark on their record. The member may be able to walk away happy with cash in hand but any administrator wanting to continue in business remains beholden to the regulator. How many black marks will it take before the HMRC or FSA decide to act? It perhaps wouldn’t be so bad if Talbot & Muir had attempted to make out that they were raising a point of principle, perhaps testing the water in order to get the rules changed. But there was nothing in the article to suggest any goal other than grabbing more business from IFAs.

Pension trustees have a duty to look after the interest of the pension fund. With SIPP and SSAS the interests of the fund usually mirror the interests of the member, but this is not so clear cut where unauthorised payments are being extracted to deplete the fund. IFAs too should think carefully about the implications – superficially it may appear they are working in the interests of their client but the Revenue is becoming increasingly sensitive to tax avoidance strategies based on deliberate abuses.

The rules as they stand certainly aren’t perfect but they do already give scope to extract high levels of income from a pension – for example, by taking maximum GAD from a fund in income drawdown or by taking income through Scheme Pension. Like most others in the industry, we passionately support the call for the 82 per cent tax rate to be reduced to a more reasonable level. It is a clear discouragement to pension saving. But we need to be working with the powers-that-be on this – deliberate breaches are not going to help our case.

Hornbuckle Mitchell director Mary Stewart


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. David Trenner - Intelligent Pensions 29th October 2009 at 5:31 pm

    Nothing here to disagree with, but I went to a Hornbuckle Mitchell presentation on scheme pension not so long ago in which they promoted the self certification option and produced a slide showing the fund being completely wiped out by age 81.

    The words which come to mind are Pot, Kettle & Black!!

  2. I agree with the general thrust of Mary’s commnets. Were it a matter of principle on the part of T&M, I would fully support them as I do think we need to start taking the FSA to task because as Mary said ” business remains beholden to the regulator” which comrpomises the whole ethos of being Independant.

  3. There’s a world of difference between using a tried and trusted method of Scheme Pension (which requires medical certification and an actuary to set the pension at a level which will deplete the fund to zero at the time of the member’s expected death) and a foolish way of raiding the fund during lifetime to use penalties and sanction charges than are lower than the current 82% on death post age 75.

    The rules are an ass and the Government has to realise that this, coupled with the current Special Annual Allowance provisions, are creating an underclass of wealthy insufficiently pension provisioned as well as the hard-up under-provisioned.

  4. Hi David/Mary

    Could you send me those slides please? 🙂


  5. David Trenner - Intelligent Pensions 29th October 2009 at 7:22 pm

    Jonathan, If I ever had a copy I deleted it. I am not sure if Mary was with HM at the time.

    Michael, HM were allowing medical self certification. Maybe they no longer are. (Certainly AxaWinterthur and Rowanmoor require certification from someone medically qualified.)

  6. I agree with David T that it is the pot calling the kettle…..

    However this action if correct goes against HMRC rules and practice.

    Oh and yes what about those SIPPs buying foreign holiday homes? Any thoughts on that subject, anyone?

  7. Wrong and self serving
    HMRC are happy with funds leaving as appropriate tax penalties are applied to more than wipe out tax advantages originally gained.
    The Government wrote the law to allow this and could change it if they wanted to

  8. Well done Talbot & Muir!

    Playing by the rules has to be fine – its the fault of the legislators if the rules are dumb.

    The rules do not forbid this course of action they just say there is a price to pay for following it.

    Its well established that you do not have to organise your affaires to maximise the tax mans take so what’s wrong with this?

  9. Mary Stewart, Hornbuckle Mitchell 30th October 2009 at 4:58 pm

    It is interesting to see the diverse views on this – it just goes to show nothing in pensions is simple.

    Is HMRC really ‘happy’ with unauthorised lump sums being taken to deliberately avoid higher tax later? If so, they must also be happy with residential properties in SIPPs too which attract similar penalties. I don’t believe so. Clients may be prepared to take the risk of displeasing the taxman but is it really wise to poke HMRC with such a sharp stick?

    It is a very big leap to link deliberate pension busting with the mechanics of Scheme Pension which works with the prevailing legislation rather than being a direct challenge to it.

  10. Hi David/Mary

    Could you send me those slides please? 🙂


  11. HMRC rules and guidelines are quite clear and allow trustees and members to carry out this type of transaction and settle the relevant tax.

    This can be done by accident or on purpose so HMRC shouldn’t have a problem.

    I agree that the taxes are a lot lower than 82%.

    It is extreemly important to get the i’s dotted and the t’s crossed to ensure that there are no other taxes etc payable.

    Professional advice is required to ensure that you do not fall foul of the guidelines.

  12. Rupert Curtis, Curtis Banks 2nd November 2009 at 10:39 am

    If a member has the right to receive unauthorised payments, then HMRC will impose a 40% deregistration charge on the entire fund. HMRC might well feel that the payments Talbot and Muir are allowing are effectively a right to receive an unauthorised payment. There may be no need for HMRC to change the rules here – they may have the ammunition already available!

  13. I think that you will find that all Pension Schemes are capable and allowed to make unauthorised payments but there must be NO right to make them.

  14. I agree with what you say John, but what constitutes a right? If a SIPP member is being told that they can take a payment like this then, no matter how you dress it up, HMRC may feel justified in arguing that a right to an unauthorised payment has been created and 40% deregistration tax applies. Our firm has already looked at this in some detail and decided it is asking for trouble.

  15. Although I do find what T&M is doing to be bending the rules a bit too far I do wonder why Hornbuckle Mitchell feel the need to try to dirty the reputation of one of their competitors. Could it be that they are losing a lot of business to T&M and have taken the decision to fight dirty?

    From what I hear HM are far from whiter than white themselves so I think they need to be careful to start a tit-for-tat press battle against T&M.

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