HMRC's restrictive practices should be cause for concern

Although most eyes in the pension world have been focused on the changes in this year's Budget and how they affect the pensions industry, more subtly, behind the scenes, HMRC appears to have been pursuing a trend of reducing savers' options even further.

By introducing forms of restrictive legislation but permitting some transitional protection for pensions savers as long as they stay in the scheme that they originally entered.

This trend, of stating that any protection for pension savers only applies to the scheme in place when the legislation changed, seriously undermines the principle of flexibility in pension saving, which is essential to achieve the best investment performance and is also critical in such a weak economic environment where savers need maximum flexibility to try and protect their capital and safeguard returns.

There are a number of examples that highlight this trend. Probably the most recent example is that the protection against the SAAC (special annual allowance charge) introduced in the 2009 Budget 2009 is specific to the scheme in which the previous contributions have been built up.

Another example is relates to the fact that the early retirement age for sportsmen was 35 pre April 2006, but was then amend to age 55. An individual who draws benefits in the original scheme pre age 55 is prevented from moving to a new scheme unless their benefits are suspended until the age of 55 is reached.

HMRC has also given SIPP/SSAS holders some borrowing flexibility to allow replacement of pre April 2006 lending with a post A day loan, but only if the pension saver remains in the original scheme.

Earlier this week we had a meeting with a firm of solicitors where 10 of the partners had made a decision to move from their existing SIPP provider. But they re-thought their decision choosing to remain with their existing provider and accept the investment restrictions and poor administration, but retain the additional tax relief granted under the protection.

All of these impose a punitive effect. The client may be stuck in a pension vehicle which is not able to offer the investment funds/features they require and cannot move to a new vehicle for fear of loosing the protection offered.

The existing vehicle might be expensive and moving to a more competitively priced vehicle would again lose a protection.

There would appear to be no good reason for these scheme specific protections to apply and the imposition of them unfairly restricts client choice and some instances could/will lead to financial loss.

It's an issue that should be highlighted before these recent examples transform into a stronger trend and then become enshrined as some sort of principle, which would be a blow to UK pensions savers just at a time when they could least afford it.

It's time for all interested individuals and industry bodies to take a stand in the interests of all stakeholders in the UK's pension industry.

Martin Tilley is business development manager at Dentons Pensions Management.