Innovation or Inviting Trouble?
In my safe domestic existence you would be surprised at the number of different ways of pushing your luck; from the minor social faux pas to the more outrageous bending of rules up to breaking point. So whether you're parking in the wrong space, cheating in the quicker queue or voting for John and Edward you take with you your share of immoral brownie points.
Now in our industry, as with everything else in life, there's a fine line between acting within the spirit of the law and asking for trouble. Essentially as we all know rules aren't always black and white and don't always make sense. Knowing how far you can go without being penalised is partly common sense and partly down to experience and essentially is the difference between being innovative and poking a big angry bear with a pointy stick.
All new legislation has grey areas and loopholes, but the 2006 rules given the magnitude of their remit was always going to throw up some anomalies and we are now starting to see these being exploited. Some of what is happening worries us - we don't think it's within the spirit of the law and we think the bear may well bare its teeth. The sorts of things I am thinking about are:
- A provider openly allowing individuals to strip up to 25% from their fund each year, at a tax rate of 55%, not much more than next year's top rate. This has been labelled "pension busting" and I wouldn't disagree with that.
- Family SIPP products which allow the members to decide how they allocate the investment return, with the lion's share going to the younger members. Current rules allow this, but it's being promoted as a way to increase funds for the younger members at the expense of the older ones, something HMRC are hardly likely to be happy about.
- Scheme Pensions are a way of accelerating income drawdown, particularly beyond age 75, but allowing individuals to self-certify their state of health or choose a high income is inviting abuse of the spirit of what these pensions were intended for.
Now these may not be mainstream pension activities but if they lead to HMRC clamping down, then the industry as a whole gets a bad name and HMRC over-reaction can adversely affect the more mainstream side of what we all do.
For these reasons it would be wrong to ignore what's going on. We have taken a few too many blows of late as an industry and it seems senseless to invite many more?