News and views from Lane-Smith & Shindler

We have received several calls from clients of the Freedom SIPP, following the publication of our name in connection with the recent court proceedings reported in Crain’s Manchester Business and Citywire.

Some of the news surrounding this event has been somewhat alarmist.  It had been widely reported for example that the members left in the scheme following the winding up order on 14 October would be hit with a 40% tax bill.  This is not quite correct. 

It is certainly true that HMRC have obtained a winding up order against the Freedom SIPP Limited.  This is a limited company that acts as pension scheme administrator for the Freedom SIPP pension scheme.  The winding up order was for non-payment of VAT.

However, the winding up order does not, of itself, cause the 40% tax charge to arise.  It is only once the winding up of Freedom SIPP Limited is complete that it will be struck from the register and will cease to exist.  At that stage the Freedom SIPP pension scheme would no longer have an authorised administrator, and the scheme will fail to meet the necessary requirements to be treated as a registered pension scheme (hence the 40% charge).  However, this firm obtained an assurance from HMRC that the liquidator will allow scheme members the opportunity to move their funds to a different SIPP before Freedom SIPP Limited is struck off.

That is not quite an end to the matter because members of the scheme need to make the appropriate arrangements with the SIPP provider to move their funds.  They also need to find a new SIPP provider to accept the funds.  There is going to be quite a lot of work to do in the next few months assuming that there will be very few scheme members who will want to stay as they are. 

The case demonstrates the tendency for people to be apathetic, certainly where pensions are concerned.  The FSA wrote to members of the scheme on 14 August informing them that HMRC were to present a winding up petition, warning them of the potentially disastrous consequences of this, and advising them to seek legal advice (see the FSA update).  However, out of 350 members of the scheme, only one small group of members took advice (from this firm) and were represented at the winding up petition.  This was a surprise to us – we had supposed that a number of other members would be represented at the proceedings.

It seems to us that members have been given a last reprieve.  If they want to avoid a penal tax charge on their pension savings, the time for apathy has now passed and the time for action is at hand.