Recently HMRC announced scheme administrators must prove to be ''fit and proper'' before registration is approved, but what does this mean? Aries' Ian Neale finds out.

Amid the apocalyptic warnings to Scots who would dare to opt out of the UK today, the faint sound of a stable door closing was barely detectable. I won't add my penn'orth to the crescendo of published opinion about the referendum - I don't have a vote.

I'd rather talk about HMRC's announcement earlier in the month that anyone registering a new pension scheme must now declare the "fit and proper" status of the scheme administrator. Amendments in this year's Finance Act to FA 2004 allow HMRC to refuse to register a pension scheme or de-register an existing scheme, where it appears to HMRC that whoever (including a corporate body) is acting as the scheme administrator is not a fit and proper person to fill this role.

Sensibly, there is no definition in the legislation of a 'fit and proper person'. Instead, HMRC guidance explains what might lead HMRC to decide the scheme administrator is not a fit and proper person. Evidence of past dishonesty, of course; but also insufficient working knowledge of pensions tax legislation and the significant duties and liabilities of the scheme administrator. If you're not a pensions professional, you will probably need to employ an adviser with this knowledge, to convince HMRC.

Sounds like common sense. So why the stable door?

Sadly, HMRC has had to re-learn the lessons of the mid-70s, when the advent of the small self-administered scheme (SSAS) led to a wild west scene as directors now able to enjoy occupational pension schemes exercised their imagination to the full. Belatedly, the Revenue forced every SSAS to employ a pensions professional as a watchdog. The "pensioneer trustee" was there to make sure the other trustees complied with Revenue rules. Thus abusers were brought under control.

A generation later, it seemed the risks had been forgotten. A-Day introduced a rigid regime designed to punish extraction of funds via unauthorised payments, but anyone could set up a pension scheme and make hay before HMRC got around to checking on who they were. So pension liberation once more became rampant, with transfers to scams masquerading as small occupational pension schemes to the fore.

Eventually, last October, HMRC acknowledged their responsibility for strangling this activity at birth. From now on, they said, they would check before confirming registration instead of months later. But there was still no necessity for any pensions professional to be involved with the scheme.

Only now - at least two years after pension liberation activity began to cost providers serious money - with the new 'fit and proper' legislation, we have implicit acknowledgment that scrapping the pensioneer trustee in April 2006 was an expensive mistake.

The threat of deregistration and the attendant swingeing tax penalties might not be too little to deter most would-be liberators, and we must hope it is not too late. Of course, just as deregulation opens the door to abuse, new regulatory controls can frustrate genuine new business (and cost clients more money). How efficient will HMRC be in reviewing applications for scheme registration? They are giving themselves up to six months.

Meanwhile, rounding up the horses is proving hard work. Hardly any prosecutions have materialised. Confusion reigns, with the Pensions Ombudsman continually delaying decisions in dozens of cases brought by aggrieved individuals. Trustees and pension providers need to feel they are on firm ground when deciding on pension transfer requests. If we are not there by 'Flexi-Day' (6 April next year), God help us.

Written by Ian Neale, director, Aries Pension & Insurance Systems Ltd

ian@ariespensions.co.uk