Pension Reciprocation Plan - Is this legal?

Former_MSE_Guy

Hi folks,

The Times is looking to speak to people who have been offered or who have taken out a pension loan or pension reciprocation plan.

Please get in touch with [EMAIL="leah.milner@thetimes.co.uk"]leah.milner@thetimes.co.uk[/EMAIL] if you want to speak to them.

Thanks,
Guy

Curver1

I am wondering, having read some posts, about a few points. If someone went down the route of getting a pension loan, despite best advice, what the structure would be. Would the HMRC take the 55% from the fund directly, or chase the person for the money? Would the loan company do anything if it came from the fund, what ramifications? Some funds lend part of your money to the lender, are there firms who put all your money in a SIPP, then the loan company is paid out after a set term, I guess post age 55?

dunstonh

Would the HMRC take the 55% from the fund directly, or chase the person for the money?

It cannot come from what is left of the pension.

Curver1

So they would chase the person who took out the loan, or wait until the fund's fruition and take it from the pot, thus reducing the available pension come retirement?

dunstonh

Curver1 wrote: »

So they would chase the person who took out the loan, or wait until the fund's fruition and take it from the pot, thus reducing the available pension come retirement?

They would come after the pension account holder for the money as soon as they become aware of the unauthorised payment. It cannot be taken from the pot, either now or later. It has to come from personal money.

There is the potential that if you repaid the loan and put the pension back in position it was they may not levy the tax charge. That is at the discretion of the tax inspector.

Curver1

Ah. So they would take 55% of the money that was received as the loan. Is this a near certainty? Is there any movement legally to get similar laws in place to other countries to allow the regulated practice of pension loans? And would it be 55% of the loan, or of the whole pot?

SippTechie

There are a few tax charges which could apply:

Unauthorised payment charge. This would definitely be a 40% tax charge on the amount lent to the individual. The individual would face the tax charge.

Unauthorised payment surcharge. This would only be charged if the loan was worth more than 25% of the pension. The tax charge would be 15% of the amount of the loan. The individual would face the tax charge.

Scheme sanction charge. This could be between 15% and 40% of the amount of the loan. It is charged to the scheme administrator of the pension (although I'd wish HMRC the best of luck in trying to get it where the people running the scheme are not much better than con artists). Assuming HMRC were able to get it, the scheme administrator would take it out of the person's pension fund, so although the person who borrowed it doesn't pay it personally, their pension scheme does.

In answer to the question about being able to borrow money from a pension, there was a sort of mini-consultation on early access to pension schemes from the Treasury last year and borrowing money from the pension was one of the proposals. However all of the proposals were set aside fairly quickly after the closure of the consultation. Wouldn't be surprised to see the Government re-visit early access at some point, but wouldn't be certain they'd do it using pension loans.

Curver1

Thanks for the info, guess my scheme stays put for now. In these times i wish that they would let people get to their money, to be fair, it's much safer in bricks and mortar these days

dunstonh

Curver1 wrote: »

Thanks for the info, guess my scheme stays put for now. In these times i wish that they would let people get to their money, to be fair, it's much safer in bricks and mortar these days

Why do you think it is safer in bricks and mortar? If you have a fetish towards property then why not use property funds in your pension?

atush

Or did you miss the housing crash after the credit crunch?