TTF Blog: 30 March 2021

Tax authorities ought to use their ‘discretion’ to stop hounding victims of pension liberation scams, argue MPs, in a landmark report published Sunday. If they cannot do so within the ambit of the Law, then the Government should look at changing it.

What is a pension liberation scam?

Ordinarily, you or your employer pay in a fixed amount into your pension pot year-on-year, accruing gradually into a large pot of money to assist you in your old age. If you try to access your pension pot early, before retirement age, you are hit with heavy tax penalties and charges.

However, pension “liberation” fraudsters have been a blight on the financial services industry for years. Often, they would offer their victims false incentives to pass control of their pension money over to them. They might claim, falsely, that a victim could draw down their pension early without any negative consequences if they transferred the pot to them.

It could then be moved offshore and into criminal hands. The victims then face a nightmare scenario of being pursued for tax on allegedly defrauded money.

The Pension Scams Inquiry reports:

“HMRC has been described as “unrelenting and uncompromising” in the pursuit of these charges. While the position taken by HMRC is legally correct, it has often lacked empathy or understanding of the impact that its demands have on victims”, this is why they advocate for change.

The impact on victims of these crimes is sadly nothing new. However, ‘pension freedom’ reforms enacted by the Government in 2015 meant that some savers were suddenly sitting ducks for vultures. It offered criminals a potentially convincing cover story for seizing hard-earned pension pots, claiming that they were offering their victims the “freedom” to invest their savings.

Fraudsters have also benefitted by  publishing false and misleading adverts online, as tech giants are doing almost nothing to stamp out false claims.

The many facets of this crime scene were explored in the landmark report on Pension Scams released on Sunday. It  has sprung from the Work and Pensions Committee’s Pension Scams inquiry, a probe that TTF campaigned for.

Modus Operandi

Of course nobody transfers a huge pension pot from one provider to another for no reason, they have to believe that they will benefit from the arrangement. So financial fraudsters – or their salespeople – may try to persuade victims is that you can access your pension early, without having to pay tax for doing so. 

As the MPs note: “This is not correct. Someone who accesses their pension early faces an unauthorised payment charge of 40% and an unauthorised payment surcharge of 15%.”

Why would anybody believe it was legitimate? Scandalously, the fraudsters could also “register” themselves with HMRC online with minimal or no checks, and use that to build trust with their marks. Other ruses included, registering with the Pensions regulator, and paying financial advisers heavy rates of commission to promote the scheme. Sometimes IFAs were conned themselves, raising questions about due diligence.

How fraudsters’ marks were made to feel ‘safe’

TTF adviser and pension scam victim Sue Flood put Tom Kelly of the Daily Mail on the trail of the scandal in 2019. An ‘Ark’ scheme is a standard term for a safe place to put your savings. The fraudsters who targeted Sue referred to their service in such a way. It convinced Sue, her partner and hundreds of other victims to transfer their pension pots to crooks. Sue and her partner say they were told, falsely, that they could access their pension money early without any tax penalties. never saw their savings again – but the scheme that Sue had invested in was registered with HMRC and the Pensions Regulator.

At the Daily Mail Tom Kelly followed up on what Sue had told him. He found that more than 100 ‘rogue pension schemes’ had been ‘registered’ with HMRC online. He reported: ‘under rules introduced by Tony Blair’s government in 2006, HMRC enrolment could be secured online in minutes – and with virtually no checks.’

Victims’ testimony enhanced inquiry

Having gained a victim’s trust, scammers typically offer incentives  for them to transfer their pension pot into the scammers’ effective control. Dennis Waite testified to the Pension Scams inquiry last year that he was offered a 5% incentive to transfer his Royal Mail Pension into a scheme that was “HMRC and TPR registered, so that made me feel safe”. His pension savings were then lost to the scheme.

Inquiry chair Stephen Timms asked: “Dennis, how much of your savings went into this scheme?“ Waite confirmed it was £108,000: “I did receive the 5% incentive, but about a year later I was waiting for the annual statement […] and nothing arrived. That is when I started to panic.” He drove down to what was meant to be the company office and found instead a ‘small virtual office’ – “That was when I knew” – he had been conned.

Dennis is now in his fifties and goes to work as a coach driver, but worries about his financial security in old age. “I don’t think I will be able to recoup what I have lost in the time I have left.”

The toll of tax appeals

Scam victim and TTF adviser Sue Flood  gave evidence to the inquiry alongside Dennis Waite.

She has been appealing to tax tribunals for almost a decade, hammered with the costs of appealing each time as a victim of a confirmed ‘fraud on the power of investment’ in what is now referred to by victims in shorthand as ‘the Ark Scheme’.

Sue explained to me yesterday that appealing her tax bill — which sprang from her being a pension scam victim — will, she is advised, cost her almost £2k additionally year on year. Victims often suffer, further, from a lack of good legal representation.

She and her partner were scammed of £250k pension savings and face punitive tax charges of 40%, alongside these additional appeal charges, to boot.

The need for prevention, and compassion

Sue told the Pension Scams inquiry last year how HMRC’s DOTAS [Disclosure of Tax Avoidance Schemes] department had met with those running “the Ark scheme” in 2011. In her opinion: “They had a perfect opportunity to stop the scammers operating. They met the creators of the Ark scheme to discuss the structure, after concerns from seeding providers that were worried about the scheme.”

MPs are increasingly concerned for the welfare of scam victims like Sue Flood. If it is not within HMRC’s gift to use its ‘discretion’ to avoid hounding scam victims, then the Government must look at changing the law, MPs now say.

“HM Treasury should recognise that, in some clearly defined circumstances, where the saver has been the victim of a crime and made no financial gain from the early access, it may not be in the public interest to demand payment of tax due,” the MPs advise, calling for substantial shifts in tax policy towards victims. They state that HMRC’s position is not, however, ‘legally’ problematic.

A sharp light on secondary scammers

Importantly, the Committee’s report also slammed ‘secondary scammers’ who seek to profit dishonestly from victims’ desire to get their money back. Secondary scammers might target a victim by claiming that they can help them – but taking a hefty cut upfront for the service, whether or not they can really deliver any assistance at all.

The Inquiry report notes some concerning evidence on what may be secondary scamming. The evidence comes from the Association of British Insurers, an insurance industry trade association. They told the Inquiry:

“We are aware of a sudden increase in Claims Management Companies (CMCs) making claims against ceding schemes or advisers on behalf of victims for allowing bad transfers to go ahead. Astoundingly, these CMCs are sometimes set up by the same individuals as the companies that encouraged the transfers [of pension pots to rogue pension schemes] in the first place.”

Action needed by tech giants

The Committee also called for new laws to prevent tech giants offering a free-for-all to rogue pension schemes or investment scams. The Committee critiques the exclusion of investment scams from new law the Online Safety Bill (previously the Online Harms Bill) currently being forecasted and drafted.

TTF member and campaigning accountant Mark Taber gave evidence on the uselessness of big Tech to the pension scams Inquiry: “Google Ads has a 90% share of the online paid keyword search market in the UK. Paid keyword search is a highly efficient means for pensions & savings scammers to target their victims. Not only does it enable them to precisely reach potential victims through targeting keywords and phrases such as ‘top ISA rates’ but also they can instantly have an advert placed at the top of the paid search results and above the natural search results simply by outbidding genuine advertisers. Furthermore, fraudsters and scammers are able to outbid genuine advertisers because they have no intention of providing a return on or repayment of money they obtain from their victims.“

How Transparency Task Force helped to make inquiry happen

TTF and our members have been involved at all stages of this campaign. We will host a Symposium on the inquiry’s report in April, where engaged MPs will speak on what the Inquiry has revealed to them and what needs to change.

We are taking a raft of other actions to try to ensure that consumers receive the right care against financial crime. As Andy Agathangelou, TTF’s founder, writes:

• We campaigned to have an inquiry on pension scams opened by the Work and Pensions Select Committee
• The inquiry was opened
• We then produced 4 detailed written responses (1 of which contains so much sensitive information it hasn’t been published to the public)
• We gave testimony at an evidence session in Parliament
• We produced several video testimonies from scam victims; 3 of whom went on to be interviewed by the Select Committee during a further evidence session (one interview was conducted in private)

We also help to run the All Party Parliamentary Group on pension scams.