The three-pronged attack on pensions liberation schemes continues. HMRC has made it more difficult for sham schemes to gain registration, the Pensions Regulator is working to increase trustee vigilance and member education and the courts are putting schemes under close scrutiny.
In a recent development the High Court has ruled on some preliminary issues in a case where it has been asked by the regulator to impose an injunction and order restitution in relation to the alleged misuse of pension scheme assets.
The case concerns a number of arrangements set up to accept transfers from registered pension schemes. The basic structure (as we understand it) is that each member establishes a personal management company (PMC) which becomes the principal employer of the new scheme. A transfer is then made from the old (legitimate) pension scheme and the member then "surrenders" the whole of his interest in the new scheme, creating a surplus which would then be paid to the PMC (and ultimately back to the member as owner of the PMC). The end result is cash in hand to the individual concerned.
In a key part of the judgment, the judge held that the attempted surrender of pension rights was void due to the operation of section 91 of the Pensions Act 1995. Section 91 prevents the surrender, other than in limited circumstances, of pension rights. The general policy behind section 91 is to ensure that funds built up in pension schemes are used to make provision for members on their retirement and for their dependants on their death. The limited exceptions to it should not be used to allow the member to use the pension benefit without restriction.
The defendant also ran some interesting arguments based on the recent Budget. First on the basis that provisions were being put in place to prevent this sort of arrangement in future (suggesting that it was currently legitimate) and second that public policy was now to allow full unrestricted access to pension benefits. Both these arguments were rejected.
Clearly creative thinking and innovation in the pensions industry is to be welcomed –but not at the risk of breaching the current law.
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