Select committee: Work and Pensions Committee
Recommendation 32
Fifth report: Protecting pension savers—five years on from the pension freedoms: Pension scams
Published 28 Mar 2021
Paragraph 131
Addressed to Department for Work and Pensions
Work and Pensions Committee Protecting pension savers – five years on from the pension freedoms: Pension scams All items in this report Report on parliament.uk ↗ Inquiry on parliament.uk ↗
Recommendation (the committee's words)
As well as ruining someone’s financial future, a pension scam can leave them with large unexpected tax bills. Pension liberation scams often involve scammers claiming that there are legal loopholes, such as loans or cash incentives, which can allow a person to access their pension early, before the age of 55, without the victim having to pay tax. This is not correct. Someone who accesses their pension early faces an unauthorised payment charge of 40% and an unauthorised payment surcharge of 15%. These penalties are intended to act as a deterrent, but do not work in cases where a scammer has convinced a potential victim that the charge will not apply. We recommend that, where someone is seeking to transfer or access their pension before the age of 55, pension schemes should be required to inform them, in a clear and accessible format, about the unavoidable tax charges they would face if they access their pension early. For people who access their pensions after this requirement has been introduced, it would be reasonable for HMRC to collect the tax due—unless it can be proved that the requirement was not adhered to.
From: Work and Pensions Committee, Fifth report: Protecting pension savers—five years on from the pension freedoms: Pension scams (HC 648), paragraph 131, 28 March 2021
Government response
The government responded to the whole report on 6 July 2021 (deadline 28 May 2021).
Summary written by Accountability Index from the government's response. It is not the government's own words.The Government "notes" the Committee's report, says it takes the recommendations "very seriously", and states it has "agreed with many of the recommendations from the outset" while it will "continue to look closely at the remaining recommendations".
- On the red and amber flag system for pension transfers, the Government agrees that the policy should be reviewed and that the flags' suitability forms part of that review, but "cannot" guarantee any legislative changes could be made "during this Parliament".
- It does not agree that inclusion on the FCA warning list should itself be a red flag, saying the Pension Schemes Act 2021 does not give powers "to use a third parties list or determination".
- It declines additional reporting by the City of London Police to Parliament on Action Fraud, saying it is "unnecessary" and oversight "should remain with the Government".
- The Government is "committed to publishing a comprehensive Fraud Action Plan after this year's Spending Review", but "cannot commit" to publishing details of its coordination with the Treasury.