Anyone who works in financial services will be familiar with the mantra of good consumer outcomes. The phrase is mostly attributed to the FCA in its principle-based regulation of its authorised parties, but surely it should be a key strategy in any organisation that services customers?
So let us consider HM Revenue & Customs and the general population – or taxpayers, as we should be known. While I acknowledge its role is to collect the tax rightly due as determined by Government legislation, it is also charged with ensuring misdemeanours and avoidance do not go unpunished.
Indeed, taskforces have been created by recent governments to target some of the larger miscreants and, we are told, some success has been forthcoming in that tax collected has exceeded the cost of doing so.
Strange, then, that one large section of the financial market has been allowing the leakage of future tax unchecked, until now. I refer to the scamming of individuals induced to establish SSASs, transfer in their accumulated pension wealth from other legitimate registered pension schemes and then fritter away the value in investment schemes that should never have seen the light of day.
Unlike pension liberation, where unauthorised payments either directly or indirectly went back to the members, and can therefore be tracked and taxed when unearthed, a loss of a pension fund through a fraudulent investment sees the value disappear to the scammer and into the ether.
Let’s take an example where an individual is induced to transfer their entitlement of £100,000 to a SSAS, with funds then invested into a scam reducing the value to zero, and the Treasury losing a large amount of tax.
Bearing in mind these funds originally derived from tax-relieved contributions and tax-free growth, it is the deferred taxation when benefits are drawn that is supposed to balance the books.
However, if we assume the unfortunate individual was pre-vesting, and could have drawn a pension commencement lump sum of £25,000, the remaining £75,000 would (if the individual drew this in tranches and paid only basic rate tax) have resulted in a £15,000 tax take. If the funds remained invested and grew within the decumulation period, the total withdrawals and therefore the tax take could be higher.
Closing doors without opening windows
It is difficult to obtain firm facts on how many of these scam SSASs exist. Some figures suggest they could be in the hundreds of thousands. While any assumption as to overall tax loss would be speculative, just 100,000 of these schemes losing £15,000 of tax would result in £1.5bn of tax lost. One would expect any lost tax will need to be made good from some other source?
We are now seeing some positive action to cork this outflow. However, this comes some 16 years after the industry first warned the removal of the pensioneer trustee role would weaken any oversight of SSASs and render them potentially exposed to tax loss.
HMRC has stated it is now looking very closely before registering schemes for dormant or new employers as well as those with a single member, as these could fit the established template used by scammers, namely: create an off the shelf company, attach the occupational SSAS to it, obtain registration, transfer in assets and open the chequebook.
The consultation launched jointly by the Department for Work and Pensions and the Treasury in December, on which we are expecting their response this spring, outlines several methods of closing these doors. Doors that have remained ajar for too long.
I have high hopes we will see a ban, not only to cold calling, but any form of cold communication. I would also support the restriction of transfers to only schemes operated by practitioners either authorised or registered by an appropriate body. We should have these safeguards. In fact, we should have always had them.
Indeed, the consultation may be too little too late and another worry is that the proposed methods of closing the door have been made public months before they will actually have any effect. This means the scammers have had a chance to examine the new safeguards and devise ways around them.
The Government must step up and resource the regulators and HMRC so they are empowered to prevent tax loss ahead of it happening, rather than chasing it after it has gone.
The individuals concerned have suffered very bad consumer outcomes but their losses will be shared by alternative tax strategies of many of HMRC’s clients.
Martin Tilley is director of technical services at Dentons Pension Management