Written evidence from G M Say [PPS0069]

What is the prevalence of pension scams?

I have no relevant knowledge or experience with which to address this question.

What are the current trends in pension scams?

I have no relevant knowledge or experience with which to address this question.

What are the common outcomes of pension scams for perpetrators and victims?

Perpetrators – They all seem to escape prosecution. Certainly, if many perpetrators have been successfully prosecuted, such information has not been widely publicised.

Victims – They invariably lose their entire pension fund, which ultimately causes an impoverished retirement and a claim on the State for Pension Credit to supplement the basic State Pension. If part of the fraudsters sales pitch was to provide a loan (“unauthorised payment”, using HMRC terminology) to the victim, their financial misery is then compounded yet further as HMRC then proceed to zealously tax such payments at a rate of 55%....and HMRC do this, even when they know about the fraudulent transactions that are about to occur within a scheme, and which they have the power to easily prevent.

Aside from the huge sense of loss and financial devastation, there is also the intense mental anguish which victims suffer for many years into the future, which in itself becomes more of a burden on the State as they require access to medical and social care services.

How are existing enforcement tools being used?

From my perspective, all of the “enforcement” activity is being directed at the victims of pension fraud, most visibly and enthusiastically by the debt collection arm of HMRC (their Field Force team) in relation to the astronomical tax charges which arise from the unauthorised payment surcharge applied to loans received by victims.

What more can be done to prevent pension scammers operating?

I have appended my Victim Experience statement to this document. That statement identifies a number of glaring failures on the part of the Regulatory Authorities all of which contributed to my loss and the undoubted losses of many hundreds more victims. Whilst there may have been some minor improvements since I lost my pension fund in 2010, I am far from convinced that there have been sufficient steps taken to prevent scams occurring today.

Despite what some in Government and the pension industry may believe, the “Scorpion” initiative receives nowhere near enough publicity and prominence to sufficiently influence the decisions being considered by holders of pension plans. The dangers of being scammed need to be front-and-centre in the minds of those considering their pension options, well in advance of any applications being submitted.

HMRC’s register of authorised pension schemes (and the associated granting of a PSTR number) is viewed by all as the “single source of truth” – if a scheme has a valid PSTR number, there is an all-pervading assumption that a scheme must be bona fide. It follows that HMRC has an absolute imperative to assure itself, the pension industry and members of the public that each and every scheme is worthy of holding a PSTR number. HMRC must invoke a much more stringent registration process and it must then regularly audit and inspect all schemes that it has registered, insisting on evidence to demonstrate the appropriateness of both the underlying transactions within the scheme and the activities of the scheme trustees and administrators. If there are any areas of concern, HMRC must immediately suspend a scheme’s PSTR number until sufficient assurances have been obtained.

What more can be done to prevent individuals becoming victims of pension scams?

My above comments also address this question.

What role should the pensions industry have in preventing scams?

All of the relevant Regulatory Authorities (the Pensions Regulator, the Financial Conduct Authority, Serious Fraud Office & HMRC) and the ceding providers need to accept that they have a responsibility for preventing scamming – I am not convinced that any of them really believe that this is part of their role. It seems far too easy for a fraudster to set-up and register a pension scheme in the UK; when this happens, and victims start to ask questions, the first reaction of all of the Regulatory Authorities is to deny all responsibility for the funds that have been stolen by the fraudsters.

Is HMRC’s position on the tax treatment of pension scam victims correct?

Whilst the Salmon Enterprises Tax Tribunal case has proved that it is legally correct for HMRC to charge tax on unauthorised payments out of a pension scheme, the morality of HMRC’s activity in this regard is highly questionable. The Tribunal judge concluded that tax charges on unauthorised payments from a pension scheme were technically valid, however, his judgement specifically stated that the Tribunal's jurisdiction did not allow him to comment on either the conduct of HMRC, or whether the tax charge itself was fair or reasonable in these circumstances. In the Salmon Enterprises example, HMRC was fully aware of the fraudulent activities of the Directors of the scheme trustee and administrator, yet it continued for many years to allow victims to pour huge sums of money into the pockets of the scammers and then it proceeded to tax those same victims on the value of any unauthorised payments. If HMRC had withdrawn the Salmon PSTR number in April 2010 when it and the Pensions Regulator identified a serious and immediate risk to the funds in the scheme, the flow of new money into the fraudulent scheme would have ceased immediately….but, shamefully, HMRC failed to take any action at all, other than to raise tax assessments on the victims. It is manifestly unfair and unjust for HMRC to seek to tax the victims of a fraud which it could, and should, have prevented. Such actions completely contravene the fundamental principles enshrined within HMRC's Charter, whereby it is committed to acting in an even-handed manner, exhibiting respect for the taxpayer.

To draw a comparison with the corporate world, if a financial company approved, permitted and helped to execute a transaction for a customer that it knew was almost certainly going to be fraudulent, but then charged the customer an enormous financial penalty once this fraud became apparent, that company's Directors would most certainly be held to account for fraud themselves. And, this is exactly what HMRC has done; acting with apparently unrestricted impunity, it knowingly allowed fraudulent transactions to be perpetuated and it has then proceeded to tax the victims of the fraud that it could and should have prevented.

Other countries neither feel compelled to treat the victims of fraud as co-conspirators, nor do they seek to ruin the lives of victims by taxing them at a punitive rate. Does this happen in the UK because the victim is an easy target and it would be much harder to expend resources trying to prosecute the scammers? Whatever the reason, until the law is changed to prevent HMRC taxing the victims of pension fraud, the current injustice will remain.

Are public bodies co-ordinating the response to pension scams?

Not nearly as well as they should be. As stated above, none of the Regulatory Authorities appear to believe that an integral part of their role must be to prevent pension fraud. So, whilst they clearly communicate between themselves, they do not have the true interest of the public at the heart of what they do. In the Salmon Enterprises example, HMRC and the Pensions Regulator have both openly stated that they believed they were acting in the public interest by preferring not to potentially infringe the rights of the fraudsters rather than to prevent the fraudsters continuing to steal pension funds. There is clearly a lot of twisted logic being applied here, a state of play that urgently requires redress as a result of this inquiry.

Conclusion

I appreciate that there are a number of suggestions for improvement to the current situation articulated above, however, I would view the following as being the most urgent recommendations that I hope your inquiry reaches:

1. A tax amnesty for the victims of pension fraud. Fraud victims should be treated with compassion and should not be taxed, especially where the tax charge has arisen as a result of HMRC's knowledge of, and failure to prevent, the underlying fraudulent activity. This should extend to nullifying the tax charges raised historically by HMRC, where the underlying scheme has been proven to be fraudulent.

2. All of the relevant Regulatory Authorities need to be made to accept responsibility for preventing pension fraud – a key part of this change in emphasis will be to ensure that any victims of pension fraud are no longer treated as co-conspirators. These Authorities must truly start to act in the public interest, rather than merely paying lip-service to their obligations.

3. Support the concept of introducing a long-term Pension Protection Fund (or similar) to support the victims of pension fraud, with contributions to the fund being drawn annually from pension providers.

4. Introduce a legal obligation for the Pensions Regulator to appoint an independent trustee on every occasion when they are compelled to ban an existing trustee as a result of fraudulent activity.

The Salmon Enterprises Pension Scheme – a Fraudster’s Paradise (aided and abetted by the Pensions Regulator and HMRC)

A Victim’s Experience

1. In June 2010, I transferred £174k from my SIPP into the Salmon Enterprises Pension Scheme. Many years later, I discovered that the scheme trustees and scheme administrator had been using the scheme as a vehicle with which to commit fraud and my pension fund had been stolen. Part of the fraudulent transaction involved what HMRC has called an "unauthorised payment" from the pension scheme, the value of which HMRC has now taxed, resulting in my receipt of a tax bill of approx £90k.

2. When I discovered that the Pensions Regulator had issued Determination Notice 2416055 in April 2010, which prevented Tudor Capital Management Limited ("TCML") from continuing in their role as a trustee to the Salmon scheme (as a direct result of HMRC providing evidence to the Pensions Regulator which demonstrated serious criminal activity by TCML Directors), I initially argued that my SIPP provider must have been negligent in permitting the transfer of my SIPP into the fraudulent Salmon scheme. However, the Pensions Ombudsman rejected my complaint, stating that my SIPP provider could not have known about (or acted upon) the Determination Notice in 2010, because the Notice had been suppressed by the Pensions Regulator from ceding providers (and the public) until 2014.

3. The Pensions Ombudsman also stated that the industry standard in 2010 was simply for the transferring scheme to establish if the receiving scheme had a valid Pension Scheme Tax Reference number (as issued and controlled by HMRC) at the time of the proposed transfer. The fact is that HMRC chose to allow the Salmon PSTR number to remain intact and unblemished on its register, despite HMRC being fully aware of the fraudulent activities of the scheme trustees at that time.

4. My subsequent complaint to the Pensions Regulator for negligently suppressing their Determination Notice has been rejected on the basis that suppressing the Notice was justified because to have published it would have potentially prejudiced HMRC's ongoing criminal investigation into TCML. The decision to suppress the Notice was made, despite the Notice clearly stating that there was "an immediate risk to the interests of the members of the Scheme and the assets of the Scheme" and that "members' interests were of paramount importance in this case".

5. Although the Determination Notice wasn't published for a further 4 years, the directive it contained for TCML to resign as the Salmon scheme trustee was completed in May 2010. However, although it was well aware of the ongoing criminal investigation and the immediate risk to the scheme assets, the Pensions Regulator failed to appoint and independent trustee to the Salmon scheme, which inevitably resulted in all remaining funds within the scheme being stolen by the fraudsters.

6. My complaint to HMRC for negligently and knowingly allowing the fraud within the Salmon scheme to perpetuate for several years has also been rejected. HMRC states that the decision to suppress the Determination Notice in 2010 was wholly taken by the Pensions Regulator. However, HMRC has declined to explain why it failed to withdraw or suspend the Salmon PSTR number in April 2010, despite the HMRC website stating that it will suspend a PSTR number if it suspects there has been any "non-compliance". HMRC has also made no comment so far on its manifestly unfair and unjust policy of taxing the victims of fraud, especially when it knowingly allowed the underlying fraud to perpetuate unchecked for several years; these actions completely contravene the fundamental principles enshrined within HMRC's Charter, whereby it is committed to acting in an even-handed manner, exhibiting respect for the taxpayer.

7. In summary, the Pensions Regulator and HMRC are both denying any responsibility for failing to prevent the fraudulent activity within the Salmon scheme in 2010 (despite both being fully aware of the activity and both having the means through which it could easily have been prevented) and both are claiming to have acted "in the public interest". Both organisations seem to have concluded that it was more important not to infringe the rights of the fraudulent TCML Directors, than to protect the pension assets of the public that were clearly then in great jeopardy. Or, maybe the Pensions Regulator and HMRC simply didn't care that their inaction would perpetuate the fraud. The sad reality is that, through their complacent and negligent inactivity, they simply provided the fraudsters with free reign to steal my pension fund, along with the funds of hundreds of other victims. Such an outcome must have been clear to both the Pensions Regulator and HMRC in 2010, by reference to the statements which warned of an immediate danger to members and their funds contained in the Determination Notice that they were so determined to conceal.

8. My complaint to HMRC states that had they withdrawn or suspended the Salmon PSTR in April 2010, further transfers (including mine) into the fraudulent scheme would not have occurred and my loss would not have arisen. Given that HMRC had provided the initial evidence of criminal activity to the Pensions Regulator, on which their Determination Notice which banned the trustee was predicated, it is obvious that HMRC must have been aware of the ongoing risk to pension funds invested in the Salmon scheme, yet they did nothing to prevent more funds being stolen by the fraudsters. If the Determination Notice was to have been suppressed and the PSTR was to have remained intact, the issuing of a Determination Notice which banned TCML from acting as a trustee was a complete sham. No benefit could possibly have been derived from this course of action and it was most certainly not in the public interest. The reality is that the Pensions Regulator and HMRC concluded (wholly wrongly) that the public interest was best served by them continuing to allow fraudulent transfers and the loss of many more pension funds (for 4 further years), rather than to potentially prejudice an HMRC investigation. Given that HMRC had the power (and obligation) to protect the public by preventing all transfers into the Salmon fund from April 2010 onwards, but specifically chose not to do so by allowing the Salmon PSTR number to remain intact, it is now manifestly unfair and unjust for HMRC to seek to tax the victims of a fraud which it could, and should, have prevented.

9. Whilst the judge at the Salmon Enterprises Tax Tribunal concluded that tax charges on "unauthorised payments" from a pension scheme were technically valid, his judgement specifically stated that the Tribunal's jurisdiction did not allow him to comment on either the conduct of HMRC in this matter, or whether the tax charge itself was either fair or reasonable in these circumstances. To be clear, I am NOT contesting the judgement reached by the Tax Tribunal and nor am I seeking for any of the legal issues that the Tribunal considered to be re-visited. My complaint is not about what the law states, but it is all about how the Pensions Regulator and HMRC behaved towards the public.

10. To draw a comparison with the corporate world, if a financial company approved, permitted and helped to execute a transaction for a customer that it knew was almost certainly going to be fraudulent, but then charged the customer an enormous financial penalty once this fraud became apparent, that company's Directors would most certainly be held to account for fraud themselves. And, this is exactly what HMRC has done; acting with apparently unrestricted impunity, it knowingly allowed fraudulent transactions to be perpetuated and it has then proceeded to tax the victims of the fraud that it could and should have prevented.

11. However, my complaint is not solely directed towards HMRC; in order to fully appreciate the total failure to serve the public interest which has taken place, it is necessary to view this case from a holistic perspective. Despite correctly identifying the imminent danger to which assets in the Salmon scheme were exposed, the Pensions Regulator failed to communicate this to either ceding providers or the public and then compounded this initial error by failing to appoint an independent trustee to the Salmon scheme in order to protect the remaining assets in the scheme. In terms of the decisions they took which directly led to the loss of my pension fund, the actions of the Pensions Regulator and HMRC are inextricably linked; this is clear from the extent of the correspondence between them in early 2010, as described in the relevant Determination Notices.

12. Whilst HMRC and the Pensions Regulator continue to deny any responsibility whatsoever for the complete loss of my pension fund, I am now left with a ruinous debt to service before I can start trying to plan again for my retirement.

October 2020