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Talbot & Muir responds to Hornbuckle attack

Last week, Hornbuckle Mitchell director Mary Stewart launched an attack on rival Talbot & Muir after the provider started allowing individuals to withdraw 25 per cent of their pension fund on top of the GAD limit. Today T&M director of pension consultancy Nathan Bridgeman responds to Stewart’s comments.

Since launching our new pension service, Accelerated Pension Withdrawal, there have been a number of ill-informed comments in the media casting aspersions on this important financial planning tool for maximising and accelerating pension fund withdrawals.

Our service allows clients to withdraw payments in excess of the normal limits imposed by HM Revenue, by granting withdrawals of up to 24.9 per cent of their pension fund every 12 months.

Because these payments exceed the normal limits, they are known as “unauthorised payments” – but for the avoidance of doubt, “unauthorised payments” are not unlawful. Nor, as some commentators have stated, do they breach either the spirit or letter of the rules.

On the contrary, our new service not only allows clients to withdraw larger sums from their pension more quickly than they would otherwise be allowed, but it also raises more tax revenue – more quickly – than HMRC would otherwise receive.

So let’s take a closer look at how the pension scheme rules for “unauthorised payments” are drawn and how our new service works.

To begin with, there are three possible tax charges on unauthorised payments: an Unauthorised Payments Charge, a Scheme Sanction Charge and an Unauthorised Payments Surcharge.

The UPC is a tax charge of 40 per cent of the money withdrawn which is payable by the person (or “member” of the pension fund) taking the money from their pension. They must declare the payment on their tax return, or report it to HMRC if they don’t complete one. The Scheme Administrator must declare the payment in an event report, which must be submitted by 31 January in the year following the tax year that the payment was made.

The Scheme Administrator is liable to the SCCin any year a pension makes scheme chargeable payments, whether by way of unauthorised payments or unauthorised borrowing.  As long as the UPC had been paid, the SCC is 40 per cent of the chargeable payments less the lower of the UPC already paid or 25 per cent of the chargeable payment.

The Scheme Administrator must declare the payment in an event report by 31 January in the year following the tax year that the unauthorised payment was made in. HMRC will then issue an assessment to the scheme administrator for the amount due.

When the unauthorised payment is 25 per cent or more of the pension, the member must also pay a UPS of 15 per cent of the payment, and must declare it on his tax return or report it to HMRC. The Scheme Administrator must also submit a report in the same way as mentioned for UPC and SCC above.

Risk of De-registration

HMRC can (but does not have to) de-register a scheme if the total amount of unauthorised payments made by a scheme in any 12-month period is 25 per cent or more of the total value of the scheme’s fund.  The de-registration charge is 40 per cent of the total value of the scheme’s fund immediately before registration is withdrawn and is payable by the Scheme Administrator.


Example of Unauthorised Payments Charges:

Mr Smith has a fund of £360,000.

He decides to take his whole fund as a lump sum.

This incurs the following tax charges:

  • Unauthorised Payments Charge of 40 per cent: £144,000
  • Scheme Sanction Charge of:             £  54,000
    • 40 per cent (£144,000) minus the lower of:
      • £144,000 (charge already paid)
      • £90,000 (25 per cent of the unauthorised payment)

§       Unauthorised Payments Surcharge of 15 per cent: £ 54,000

Total tax charge: £252,000

Mr Smith is liable for a tax charge of £198,000

The Scheme Administrator is liable for a tax charge of £54,000

Talbot & Muir’s Accelerated Pension Withdrawal

To avoid the potential risk of HMRC de-registering a scheme, we limit the amount a member can withdraw to 24.9 per cent in any 12-month period.  How this would effect the above example is as follows:

Mr Smith has a fund of £360,000.

He decides to make an unauthorised member payment amounting to 24.9% of his fund value, which amounts to £89,640.

This incurs the following tax charges:

  • Unauthorised Payments Charge of 40 per cent of £89,640: £35,856
  • Scheme Sanction Charge of:          £13,446
    • 40 per cent (£35,856) minus the lower of:
      • £35,856 (charge already paid)
      • £22,410 (25 per cent of the unauthorised payment)

Total tax charge: £49,302

Mr Smith is liable for a tax charge of £35,856

The Scheme Administrator is liable for a tax charge of £13,446

As can be seen, our APW service allows members to withdraw just under 25 per cent of their pension fund every year with a tax charge of 55 per cent. By using APW, members can access more money more quickly for whatever purpose they wish, be it investment, expenditure or gifting to their heirs or worthy causes.

HMRC receive tax of 55 per cent of the withdrawals, which is more than the highest rate of income tax so they, too, receive more money sooner than they otherwise would. So for those members willing to pay a modest increase in tax, it can unlock funds which would otherwise remain trapped in a pension.

Talbot & Muir director of pension consultancy Nathan Bridgeman


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. I would have thought that T&M would have kept quiet on this one and not defended their position as what they are doing does seem to be, although “allowable”, not in the spirit of retirement savings.

    In the good old days we had something called “sole purpose” wheras pension benefits were to pay a pension throughout a persons retirement.

    I can see why T&M are doing this but I would have concerns that pensioners are taking more than they should without really giving much thought to the longer term consequences.

    What happens when the client runs out of funds? I know that the defence will be that these plans are only sold to those with other sources of income but peoples circumstances can change and to not have their pension to fall back on could be pretty catastrophic for some.

  2. Such proposals are either brilliant or foolhardy. I suspect the latter in this case and think this might be the few causing trouble for the many.

  3. You must be joking 6th November 2009 at 3:12 pm

    Actually, I think it is brilliant. Which will undoubtedly mean that either HMRC or the FSA will have something to say about it.

    Maybe if the post 75 (death) taxes weren’t so onerous, planning like this wouldn’t be needed, but until the balance is redressed in favour of the policyholder and their heirs then lateral thought like this what “Planning” is all about!

  4. David Trenner - Intelligent Pensions 6th November 2009 at 4:48 pm

    “for the avoidance of doubt, “unauthorised payments” are not unlawful. Nor, as some commentators have stated, do they breach either the spirit or letter of the rules.”

    Three words apply: Cloud Cuckoo Land!

    Recycling tax free cash, residential property, ASP …. could there be a wee clue to what will happen???

  5. Hello Mr Client,

    I have this great scheme that maximises HMRC revenue streams, does so early and ensures that the future income you can take in a few years is significantly diminshed, possibly to the point of zero. And should you die, your spouse maybe in penury as well Sign here.

  6. Thankfully I have never been able to afford tax planning that gets me 40% tax relief going in and 55% on the way out. Presumably these clients have been able to fiddle more than 55% relief on the way ? otherwise apart from providing fees for advisers what has been achieved ?

  7. I like your style John Blackmore and I long to see someone try to answer your little poser! I am afraid I think along the lines of Anon and David Trenner above. If as you must be joking says, the action is brilliant, I don’t think I’d be shouting too loudly as I think HMRC may take a dim view in due course if they believe this is not in the “spirit”. Has anyone asked them?

  8. Nathan Bridgeman 9th November 2009 at 5:30 pm

    Some excellent points made above. We discussed this some time ago with HMRC and before we launched our Accelerated Pension Withdrawal (APW) facility we rechecked that not only does the legislation allow this but HMRC are happy with a) what we are doing b) the process we have in place for administering the tax collection. We have this in writing from HMRC and have always stressed that this is a facility that is used only after independent financial advice has been sought and provided.

    Feedback from those IFAs that have used this with clients has been excellent and is a particularly useful tool to help clients avoid the penal 82% tax charge on funds levied for those who die after age 75 with an ASP. As independent professional trustees and scheme administrators we do not make the rules but have always innovated in a way that embraces not the only the legislation but the spirit of the legislation. Also HMRC are getting 55% tax now through APW rather than a maximum 40% tax now through USP, ASP, Scheme Pension or Annuity which may be why they are comfortable with what we are doing and why HMRCs registered pension scheme manual gives clear examples of how scheme administrators and trustees like us can apply the tax and utilise Unauthorised Payments (APW).

    We simply offer a value for money tax wrapper along with the tools and technical support for IFAs to use with their clients where suitable. Never have we suggested that this is a solution for everyone. We also offer a Scheme Pension facility with full and robust audit trail from an actuary (including medical certification as we believe medical self-certification is inappropriate) along with full USP and ASP service giving the flexibility for you and your clients to choose.

    Finally, we do not use the press to attack our competitors; rather we win our business on the merits of our proposition and help to advance the promotion of the SIPP and SSAS market where we possibly can.

  9. I think are few people are jumping on the bandwagon without actually reading into what the proposition is.

  10. Rather than knocking the innovation of T&M perhaps we should embrace the fact that they are looking outside the box and delivering solutions. As a financial planner I fully embrace this alternative solution for the right client.

  11. I wonder whether this really works? It assumes that T&M know the *precise* value of the SIPP at the point the payment is made. Do they? Or do they work off valuations from an investment manager which may be some days out of date? Or historic property valuations? Or historic TIP/EPUT valuations?

    So, in the example, they calculate 24.9% of £360k and pay that. But what if the Revenue were to investigate and to calculate that on the day the payment is made the market value of the fund (in accordance with Section 278, FA2004) were only £350k, the unauthorised payment would be >25% of the fund and could trigger deregistration of the scheme – OUCH!

    This is a serious firework to be playing with…

  12. Piers Westminster 12th November 2009 at 11:32 am

    In my opinion T&M have shown a good re-basing of the current pensions market. It’s important to remember what is right for one is not always right for the other and vice versa. T&M are merely providing alternative solutions to those for whom such products may benefit their situation.

  13. As you rightly point out SIPPman, Scheme Chargeable Payments exceeding 25% of the member’s fund value in each 12 month period would breach the HMRC de-registration threshold and might, therefore lead to the Scheme being de-registered. Mindful of this, we limit the level of unauthorised payment to no more than 24.9% of the member’s fund value and this is the theoretical maximum rather than the default position for all clients. In practice, we will look at each case individually and obtain independent professional valuations of real property assets where appropriate. As you will appreciate, the valuation of unitised investments, individual equities, bank deposits etc is less subjective and are valued by us on the date of payment rather than relying on third party, historic values. We will not proceed without our valuation criteria being met and our general procedures being strictly adhered to. Hopefully this helps?

  14. Well tax relief at 40% and taxed at 55% doesnt sound like a good deal except that the tax at 55% is applied at age 75 (maybe after 25 years of income drawdown). .You could take 25% tax free, then 5% per annum for 25 years (taxed at maximum of 40%) . At age 75 if youve still money left, take the rest over 4 years at just under 25% per annum, taxed at 55% . Sounds fair to me, if the investor has no dependants he or she wants to pay the money to and doesnt want to buy an annuity. Surely its up to the customer to decide what they should do, its not up to the SIPP provider to say they cant do it. Talbot and Muir have got it right I think.

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