The HM Revenue & Customs newsletter released at the end of last month reminded us there is no time limit on how long it can take to decide whether or not to register a pension scheme.
Indeed, it is taking more than three months from first application for a SSAS to formal registration, indicative of the checks being performed and additional questions being asked.
This is part of HMRC’s crackdown on the previous misuse of SSASs created for new or dormant companies for the sole purpose of perpetuating fraudulent investments or pension liberation.
Not only will it refuse to register schemes in such circumstances, it also has the option to deregister existing schemes using its discretionary powers.
The increased timescale of registration is only the first of time hurdles, as the trustees and administrators of ceding schemes are also under pressure to ensure the release of cash equivalent transfer values are only to appropriately established and bona fide registered pension schemes.
A recent Pension Ombudsman determination upheld a complaint against a defined benefit public sector scheme, which “failed to conduct adequate checks and enquiries in relation to the complainant’s new pension scheme”. Clearly, substantial checks by ceding schemes must also be undertaken to ensure the transfer is to a scheme from which genuine retirement benefits will be paid.
Tip of the iceberg
But are the HMRC checks on establishment of new SSASs just the tip of the iceberg? There is evidence it may have increased scrutiny of existing schemes too.
In 2014, it introduced a requirement that each scheme should have a “fit and proper administrator”. It will assume all administrators are “fit and proper” until it is aware of evidence to the contrary but then it has the power to deregister a scheme with penal tax consequences.
Our introducing intermediaries have reported increased numbers of previously “orphaned schemes”- those operating without an acknowledged professional administrator or practitioner – asking for guidance or appointment of a recognised specialist firm. This could well be driven by more in-depth enquiries from HMRC following annual pension scheme returns.
That HMRC might be stepping up its interest in current schemes would come as no surprise. It is in its interest, and those of the Treasury, that these schemes, which operate in a largely tax-exempt environment, should be properly and accurately administered.
Aside from the fact these schemes will provide retirement benefits to members, the income of which will be subject to income tax, it must also ensure there is no leakage of funds from the scheme by way of maladministration.
It is on this latter point orphaned schemes should be particularly careful. Aside of the usual annual returns, there are over 20 events that might occur within a registered pension scheme that require timely online reporting. Failure to submit a report could trigger a penalty of £300 and additional daily penalties of up to £60 per day can be charged for continued failure to submit.
Other failures, through insufficient experience or knowledge, can be even more costly.
An example is the correct documentation of loans to a founder employer. HMRC acceptance of a loan is subject to five key criteria that need to be satisfied and documented. Failure on any one of those criteria means payment of funds by the pension scheme to the employer ceases to be a loan and is in fact treated as an unauthorised employer payment.
These payments can trigger tax charges of 40 per cent of the payment amount on the employer and a further 15 per cent surcharge within the pension scheme.
Advisers whose clients may be operating SSASs without the specialist assistance of an experienced pension scheme administrator, should make them aware of the HMRC interest and ensure those schemes and their administration is complete and up to date, and that the duties of the administrator are fully understood.
Martin Tilley director of technical services at Dentons Pension Management