Is your pension scheme fit and proper?

Taylor Patterson has seen an increased number of enquiries from individual members seeking help with their pension schemes. This has largely been down to the “Fit and Proper” legislation introduced by HMRC in September 2014. The legislation states that all scheme administrators should be fit and proper.

Why have HMRC introduced ‘Fit and proper’?

The legislation was designed to help with the fight against pension’s liberation as it gives HMRC the powers to refuse to register pension schemes. It also gives HMRC the power to deregister existing schemes.

HMRC are keen to ensure that as pension funds receive many beneficial tax breaks, that the funds in these schemes are used for their intended purpose of providing pension benefits.

The intention of this legislation is a further step by the Government to ensure pension schemes are only registered and run by appropriate people. This is to make it harder for fake arrangements and pension schemes to be set up, and for tax avoiders and fraudsters to set up and run registered pension schemes with a view to misusing the tax relieved funds and abusing pension tax reliefs.

HMRC and The Pensions Regulator have been trying to educate the public regarding pension liberation and pension scams, to protect people’s pension savings.

How does HMRC define a fit and proper scheme administrator?

There is no definition of a fit and proper person, HMRC have simply given guidance on what they expect from a pension scheme administrator. HMRC will therefore assume all scheme administrators are fit and proper unless they have cause to believe otherwise.

A scheme administrator is likely to be considered a fit and proper person if they are familiar with, and capable of competently performing, the appropriate responsibilities and there is nothing in their past behaviour to suggest they should not be responsible for the financial management of a pension scheme.

What factors do HMRC consider in deciding if a scheme administrator is NOT a fit and proper person?having insufficient working knowledge of pensions and pensions tax legislation, or not employing an adviser with this knowledge; previous involvement with pensions liberation; previous involvement in a pension scheme that has been de-registered by HMRC; involvement in tax fraud, abuse of tax repayment systems, or other fraudulent behaviour; criminal convictions relating to finance, corporate bodies or dishonesty; being or having been subject to civil proceedings relating to finance, corporate bodies or dishonesty/misconduct; any connection or participation in designing or marketing tax avoidance schemes; employing an adviser involved with pension liberation or tax avoidance; being disqualified from acting as a pension scheme trustee, or any serious contravention of the pensions regulatory system or any other professional or governmental regulatory body or system; and being disqualified from acting as a company director, or having been declared bankrupt. One of the easy triggers for HMRC to spot would be for example, if schemes are late with their returns or haven’t filed them for a number of years. It would be easy to consider the possibility that these are not being correctly administered. If member trustees have previously had a fall out with their professional trustee, who has resigned, the role of scheme administrator generally falls to the member trustees. The fines for getting the scheme administration wrong can be steep. De-registration will cost the pension scheme members 40% of the fund value and they will then pay tax at their highest marginal rate to withdraw the funds.