Background Note
54.Pensions tax relief is provided on contributions to a registered pension scheme for and on behalf of a member, and once in the registered pension scheme any investment growth on the funds is normally tax free. This tax relief is provided so that the funds can be used in later life by the member and/or their dependants. The pensions tax rules therefore set a minimum pension age at which benefits can normally be taken, this is currently age 55. Where benefits are taken before this age, except in prescribed circumstances, for example on the payment of an ill health pension, the payment of benefits will be an unauthorised payment and significant tax charges apply to recover the tax reliefs previously given.
55.A number of pension scheme promoters have set up schemes intended to enable individuals to access some or all of their pension benefits before the minimum pension age. To do this, they often use a registered pension scheme to which the member is encouraged to transfer their pension to before the pension is ‘liberated’ to the member. In many cases the member is not told of the significant tax charges that will apply and therefore are often left with little or no money after the promoter’s fees have deducted.
56.These changes have been introduced to:
Provide additional powers to HMRC to help it detect and prevent the registration of liberation schemes and to detect and de-register any liberation schemes that have already been registered.
Prevent authorised surpluses being artificially created as a potential means of liberation.
Ensure that where the Pensions Regulator becomes involved with a pension scheme any tax charges are applied fairly.
