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Topics: occupational pensions| Treasury| Tom McPhail| cash
Changes to rules around withdrawing small pension pots as lump sums could lead to large scale abuse of the system, Hargreaves Lansdown has warned.
Today the Treasury announced it would extend the rules which allow people to withdraw occupational pension pots of below £2,000 as lump sums to include personal pensions as well.
The Treasury had originally restricted the commutation of small pots to occupational schemes because these required an employer to be set up, and so were harder to arrange as part of a scam.
Personal pensions have no such restriction, and for this reason, the Treasury said investors can only commute two £2,000 personal pots over their lifetime, to prevent abuse.
But Tom McPhail, head of pensions research at Hargreaves Lansdown, said the two-pot limit may not stop some people setting up "granny farming" scams.
In these situations, an individual could convince people aged 60 and above to place £1,600 into personal pensions.
This would attract a further £400 in tax relief, and the pot could then be commuted.
As many pensioners do not pay income tax due to their higher threshold of at least £9,940, the pension would be cashed tax free.
The £400 in tax relief could then be split between the pensioner and the intermediary, McPhail said.
Multiplied over hundreds of people, a scam of this kind could generate thousands of pounds in misappropriated tax relief.
A spokesperson for Her Majesty's Revenue and Customs (HMRC) said: "These are draft regulations put out for comment.
"They are meant to help schemes pay out very small pension funds that can not be annuitised or combined with other funds.
"The lump sums are taxable at marginal rate, except for any element used to pay a tax free lump sum (up to 25% of the fund). We welcome any feedback or comments on the draft regulations to help ensure they operate as the Government intends."
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Laughable
What an utter load of nonsense from the normally sensible Mr McPhail. Is he that desperate for the press coverage he has to resort to this level ?
Posted by: laughable
April Fool?
I had to scroll back up to the top of this article again after I read it to double check the date. The guy wrote this as a wind up didn't he?
Posted by: Jim Gillespie
Really?
So, IFAs are so hard up for cash that they will spend hours on fact finding, research, suitability reports, just to make a measly £200 - whilst breaking all the rules that could get them struck off.... Someone has a REALLY low opinion of IFAs! I've never met ONE that would do this! When will people like Mr McPhail realise that this just isnt worth the cost???
Posted by: Lorna
KISS
Keep it simple stupid. 1. I think Tom M has lost the plot 2. I agree with otehr poster. Why on EARTH would any firm risk their approved person status like this? 3. All the rules have to state is that you can only do it at all if the money is in the PPP BEFORE age 60. Put any in after age 60 and NO commutation is allowed. Tom's problem and worries solved.
Posted by: Phil Castle
A HL Scam?
Perhaps he was merely being honest about a loophole HL found and plan to exploit!
Posted by: Green Eyed Monster
Over 60`s
Notwithstanding the high opinion expressed of grannys and over 60`s
Posted by: Granny
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Really?
Does Hargreaves Lansdown think that their no advice, cutprice, keep the rebates, shove the highest paying funds down the consumers throat approach has really made ifa's so desperate for business that they could be bothered to do all that work for £200. Wake up Hargreaves. It's just another reason to get your name mentioned in the press.
Posted by: everyifa