High Court call to outlaw pension liberation

High Court call to outlaw pension liberationThe Pensions Regulator wants to play claimant and defendant in an odd High Court case to test the legality of pension liberation schemes.

The point the regulator wants clarified is whether a retirement saver can transfer a pension into a company fund run by a firm that does not employee them.

To do this, the regulator is applying to the court for a judicial review, but has appointed two pension trustees to act against their claim in the absence of any pension liberation firm willing to test their argument.

The regulator claims that current pension law is unclear about the point.

The law gives the regulator power to appoint trustees to secure assets and run occupational pension schemes suspected of mismanagement – but if the scheme is not an occupational pension scheme, the regulator has to rely on other powers.

Lies about tax

The regulator has told the court: “There is no perfect solution to the problem of dealing with liberation vehicles on the current state of the legislation.”

Jonathan Evans, defending the claim, said: “Pensions liberation was generally regarded as a bad thing. The reason is it leads members to be much worse off than if they had left their benefits where they were.

“Such schemes often had a very, very substantial tax charge, huge fees and often were invested in a highly risky, inappropriate way.”

Lawyers for the other trustees argued that pension liberation was not currently criminal or illegal, but was ‘incredibly tax inefficient’.

“But pension fund members were often lied to about tax consequences, and told there was a loophole or some equivalent because it was a loan,” they said.

Legal challenge

The aim of the regulator is to take away the option of a pension liberation scheme marketing itself as an occupational pension scheme. As a result, pension providers will have a legal reason not to transfer funds to pension liberation schemes.

Lawyers for both sides pointed out that The Pensions Regulator appointed the trustees to ensure arguments for and against pension liberation are heard by the court.

Another point arising from the case was the regulator’s action applies to UK based company pension schemes and no Qualifying Recognised Overseas Pension Schemes or other offshore pensions are involved.

Pension liberation allows retirement savers under the age of 55 to access their funds early – pension rules do not generally allow them to take money from their funds.

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