There is a little known rule that means people who are victims of pension scams can also be hit with HMRC tax charges of 55 percent for ‘unauthorised payments’.
The double hit happens when victims are conned into moving their pension into unauthorised schemes that promise high returns or early access without any penalties.
Fraudsters then mismanage these schemes or steal the funds, which counts as an ‘unauthorised payment’ triggering a large tax bill for the victim.
Strict access rules
The rules on how and when pension funds can be accessed are strict and if withdrawals don’t meet specified criteria they are considered to be ‘unauthorised payments’.
The high tax charge, usually around 55 percent, is supposed to act as a deterrent against early withdrawals or other unauthorised access.
However, HMRC applies this penalty broadly, regardless of the reason behind the unauthorised payment, meaning that victims are charged the penalty rate because the scam withdrawal is treated as a potential abuse of pension tax relief.
Financial education
Currently, HMRC does not offer specific tax relief for victims of fraud who unwittingly make ‘unauthorised payments’.
Employers have a role to play in educating employees about the risk of this potential double raid on their retirement pot.
Losing life savings is shocking enough, but the thought of a huge tax bill on top that adds insult to injury could encourage more people to think twice before signing a ‘too good to be true’ deal.
Campaign for change
The Pensions Scams Industry Group (PSIG) is campaigning for a change in how HMRC treats pension fraud victims and has launched a petition to highlight the issue to government.
Margaret Snowdon, chair of PSIG, said; “For years, we have worked closely with victims of Pensions Liberation schemes—individuals misled into transferring their hard-earned savings into fraudulent schemes. These scams, shockingly set up and registered with HMRC, reveal a significant failure in oversight and protection.
“If losing their savings, and the associated trauma, wasn’t bad enough these victims have been subject to tax charges of 55 percent spanning over a decade. This is a gross injustice, and it is crucial that our tax policies and legislation change to better reflect the current realities of pension fraud, and its impact.”
Snowdon continued; “This has been a long fight for PSIG, and we pursue it relentlessly for the victims of this terrible crime. It’s a profound disappointment that we find ourselves in a position where a petition is even necessary to redress this injustice – but here we are. We are now asking our industry friends to please join us in asking for change by signing and sharing this petition to raise awareness, advocate for stronger protection and put right the injustice suffered by historic victims of pensions and investment scams. If we can reach 10,000 signatures it will force a debate at Westminster and a chance of change. Fraud has a devastating, often irreversible, impact on not only individuals but their whole families, they deserve our support.”
