Finance (No.2) Bill

Written evidence submitted by The Association of Member Nominated Trustees (FB14)

HMRC De-Registration of Pension Schemes

The Association of Member Nominated Trustees ("AMNT") wishes to take the opportunity to comment on the schedule dealing with the above issue that is proposed to be included in the Finance (No 2) Bill (HC Bill 134) ("the Bill") laid before the House of Commons last week. AMNT was established in 2010 as an organisation run by and for membernominated trustees, directors and representatives of private sector and public sector pension schemes. We now have over 700 members from about 500 pension schemes that have collective assets of approximately £750-billion, which is approximately one-third of the UK’s pension scheme assets.

While AMNT is very happy with the determination of the Government to use legislation to frustrate pension scams, a concern has been raised whether the draft at paragraph 1(4) of Schedule 3 to the Finance (No 2) Bill may have unintended and problematic consequences for multiemployer schemes.

The starting point for these proposals lies in paragraph 5.2 of the Treasury/DWP consultation paper on Pension Scams issued in December 2016 – see https://www.gov.uk/government/consultations/pension-scams/pensions-scams-consultation -, where it says: "There are many reasons why a company may be dormant, such as … restructuring a previously active business; or where an owner [or, one might add, sole employee] requires an extended period of time off due to illness, maternity leave …or any other reason. However, there appear to be few legitimate circumstances in which a dormant company might wish to register a new pension scheme. It is difficult to envisage a scenario where the company carries out no trading activity, yet still wishes to open a new pension scheme for legitimate purposes. The government therefore proposes to change the law to require all new pension scheme registrations to be made through an active company.".

In the light of the consultation process the proposal was amended with a view to giving HMRC discretion, where the circumstances would appear to them legitimate, to register schemes with a dormant sponsoring employer, along with discretion not to deregister such a scheme "in legitimate circumstances". In due course that revised proposal was embodied in the draft schedule referred to above, from which it has become clear that the Government does not propose to legislate to inhibit the registration of schemes whose sponsoring employers do not include any body corporate, or to extend the scope for de-registration of such schemes. AMNT sees one problem with what is proposed.

It is all well and good to require at registration that the applicant scheme have an active business entity to sponsor it. Indeed, it would not cause a problem to enact that at a time when any of the sponsors of an applicant scheme has been, for at least one continuous period of a month within the year ending that day, a dormant body corporate, registration of that scheme may not be effected except at the discretion of HMRC.

Once a scheme has been validly registered, though, and while it remains in operation, there seems no basis to view it as prima facie a gateway to fraud just because one (but not all) of the sponsoring employers has been a dormant body corporate for a month of the past year. It is not really sufficient for the administrator and other participants in such a scheme to rely on their perception that HMRC ought to give them a free pass on the basis that the continued participation of a dormant body corporate is legitimate.

The position under the paragraph (g) now proposed for insertion in subsection (1) of section 158 of the Finance Act 2004 is that HMRC would have virtually carte blanche to de-register the scheme. Nothing in the wording of that paragraph would provide a hook for an appeal, such as for example the word "substantial" does in paragraph (b) of that subsection; accordingly, in the event of a decision to de-register under paragraph (g), the appellant would need to surmount the high hurdle of establishing unreasonableness under the Wednesbury principles, or (worse) that the paragraph is not to be construed according to the literal meaning of its text.

De-registration of a scheme under the proposed new enactment would be a huge upset for its active sponsors and members. The scale of the impact of de-registration would be such that, even if the eventuality might be very unlikely, multi-employer schemes would – or ought to - be recast so that the dormancy of a body corporate would result in its automatic withdrawal from sponsorship at the end of one month in that state.

That recasting would mean that in circumstances where the continuation of sponsorship by a dormant body corporate alongside ongoing active sponsorship by other entities would pose no risk of the mischief that the proposals for legislation seek to address, the scheme would face not only the costs of instituting the avoidance measure just referred to, but also thereafter an enhanced likelihood of section 75 debts arising that would not otherwise have done so, with all the legal and administrative costs entailed. All this to no good economic or social purpose.

Interestingly, the Explanatory Notes published with the Bill – and to be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/664009/explanatory_notes.pdf - point to a resolution of the problem we raise – and maybe indicate that the current drafting was adopted without multi-employer schemes in mind. Those notes refer in paragraph 5 of their numbered page 26 to the proposals for section 158(1)(g) – and section 153(5)(h) – extending the circumstances in which HMRC "can refuse to register or [can] de-register a pension scheme to those in which the [AMNT emphasis] sponsoring employer of an occupational pension scheme has been dormant …".

If those words from the Notes, "the sponsoring employer", were substituted for "a sponsoring employer" in the proposed section 158(1)(g), that would produce the appropriate position where sponsor dormancy would become grounds for de-registration at any time only if all the sponsors had been dormant for a relevant period. The words "a body corporate" would be read as "bodies corporate" by virtue of section 6(c) of the Interpretation Act 1978; but replacing the "a" before "sponsoring employer" with "each" rather than "the" might be more elegant.

January 2018