Campaigns are full of ups and downs and mine calling for tax justice for victims of pension scams is no different. I was energised when my first paper on the subject was supported in the House of Lords. I was buoyed up when the call was heard by the Work and Pensions Committee, who in their response to their inquiry into pension scams recommended that “If HMRC is unable to make greater use of its current discretion to waive the tax due by pension scam victims then the Government should consider whether legislation is required to give HMRC the option not to pursue the tax penalties of pension scam victims.” It was disappointing that government simply ignored this.

However, the real low was to hear of the suicide of another scam victim, due to despair over the loss of pension to a scam and the tax penalty to be paid. Within the safe world of pensions it is hard for us to imagine the isolation of a victim who feels no one will help.

I have written to Ministers, to the Prime Minister, to the Chancellor and to HMRC and have met with various officials as well as submitted a Freedom of Information request, but the reply is always the same (when there is a reply of course) – victims broke the law and deserve to face the consequences. There is a mantra that applying a 55% tax penalty to an individual is a deterrent against others doing the same. The lack of understanding and empathy in public servants is worrying – who in their right minds would choose to have their entire savings scammed to avoid paying a few pounds in tax?

HMRC view themselves as tax collectors. They collect what parliament dictates they must, although somewhat ironically, they do have power to negotiate sweeter deals with the very wealthy and large corporations. The lack of members’ knowledge or understanding about pensions law is no defence, which is true in other walks of life too, but the difference with scams is that there is a third party pushing the individual to take action that would never have occurred to them otherwise. Some of those pushers were or claimed to be FCA authorised and therefore trusted by victims. Others were based overseas which means there is no compensation available to victims for the misselling. This is a gap that needs to be filled.

 

How would the ordinary man in the street know that they couldn’t take any of their pension saving before age 55? How would they imagine that an HMRC registered pension scheme would break the rules and make unauthorised payments? Why were such schemes not shut down, let alone allowed to operate? HMRC and the FCA failed to spot the bogus schemes, so what chance did the victims have? The super-irony is that all of the early victims of pension liberation scams would have been able to take their pensions by now. Some victims have no money, some have sold their houses to pay the tax, others are hoping that HMRC will eventually see that they are blameless. Yet the letters notifying the additional interest due on the assessed amount drop through letterboxes every year.

 

Technically HMRC is correct, but the tax rules were written in 2004, before pension liberation scams became a thing. Falling for a scam is not tax avoidance; scams are crimes and people have been defrauded. Finance Act 2004 is a blunt instrument.

 

Coming back to the Kafkaesque learning which prompted my heading: When is a penalty not a penalty? The answer is when a tax tribunal says it isn’t. The First Tier Tribunal (tax) McCormack & Ors, 12 April 2018 stated: “An unauthorised payment surcharge is not a penalty but a rough and ready measure to recoup the tax relief on pension contributions. As such, the circumstances in which it would not be just and reasonable to impose an unauthorised payments surcharge may be limited.”

 

Therefore, if you receive any money from your pension scheme in any manner not listed in the Act under S.164, you will have received an unauthorised payment and you will be required to pay an unauthorised payment charge of 40%. If you received more than 25% of your fund, you will be required to pay an unauthorised surcharge of 15% on top. You can appeal the surcharge, but you need to prove it would be unjust or unreasonable, which is an awfully high bar.

Some tax tribunals have been held, but they can only take account of the facts and usually conclude that they have no power to override a statute or to instruct HMRC to consider a surcharge to be unjust or unreasonable. Heads, they win, tails you lose!

 

It is clear to me that the only way to stop the penal treatment of victims is to change the law. Now that ministerial musical chairs is over for the time being, I plan to raise the matter again with parliamentarians and peers to see if we can get it back on the agenda. I am also thinking about starting a petition to help highlight the issues and potentially trigger a debate in Westminster.

 

An unauthorised payment tax charge may not be a penalty, but it feels pretty much like punishment.

Margaret Snowdon, PSIG Chair