The draft Pensions Bill is not entirely about state pension reform.
The Department for Work and Pensions (DWP) is taking the opportunity to change a few other pieces of legislation which have been awaiting attention. One or two could be controversial. For example, tucked away in Part 4 is a power to prohibit offer of incentives to transfer pension rights from a DB scheme. This is probably aimed at Enhanced Transfer Value (ETV) exercises, which the Pensions Regulator (TPR) has long regarded with a jaundiced eye. As it stands, it's more of a threat than a promise to ban ETVs, but the writing is on the wall. This power will lapse if not exercised within seven years.
But could it be designed to cast a wider net? All the regulatory authorities are becoming increasingly worried about so-called 'pension liberation' vehicles ('pension destruction' might be a more apposite label), whose promoters encourage a belief that more than a legitimate amount of cash can be released from a pension by transferring it into another scheme. Current financial stresses are fuelling this sub-industry.
While the DWP and TPR focus on protection of unwitting members who stand to lose their money, HMRC is concerned about tax leakage. Their problem is that it is not difficult to register a pension scheme online: if the provider supplies the information HMRC ask for, registration is automatic. HMRC can de-register a scheme if later checks reveal materially incorrect information or false declarations, but by then it might be too late.
The potential adverse consequences for the member, if HMRC finds out what they have done, include swingeing unauthorised payment charges. If as a result of losing most of their pension the member is plunged into poverty, there are also potential societal costs, further down the line.
The problem faced by the transferor is that if the member is exercising a statutory right to transfer, and has nominated a registered pension scheme (or a QROPS) to receive the funds, they might have no lawful reason to refuse the transfer.
So how to stop it? Clause 29 of the draft Bill allows for regulations to prohibit "a person" - which could include the provider of the receiving scheme - "from offering an incentive to another person with the intention of inducing a member of a salary related occupational pension scheme to -
(a) exercise a right to require a pensions transfer, or
(b) agree to a pension transfer."
Arguably, then, this could be designed to choke the supply side by clamping down on promotion of pension liberation. If the law was ignored, a fine of up to £50,000 under section 10 of the Pensions Act 1995 could be levied on the promoter - multiplied by the number of members to whom the incentive relates.
Written by Ian Neale, director, Aries Pension & Insurance Systems Ltd
