Work and Pensions Committee (WPC) chair, Stephen Timms, has written to Economic Secretary to the Treasury, John Glen, to request clarification on HMRC's tax treatment of pension liberation victims.

As part of the WPC’s inquiry into pension freedoms and pension scams, it outlined a number of recommendations, one of which related to the “continuing unfair treatment of victims of pension liberation schemes”.

The committee noted that pension liberation scams often involve scammers incorrectly claiming that there are legal loopholes, such as loans or cash incentives, which can allow a person to access their pension early, before the age of 55, without the victim having to pay tax.

However, someone who accesses their pension early faces an unauthorised payment charge of 40 per cent and an unauthorised payment surcharge of 15 per cent.

WPC’s inquiry heard evidence that HMRC had been “unrelenting and uncompromising” in the pursuit of unauthorised payment charges such as these, with the committee concluding that while the position taken by HMRC was legally correct, it had often lacked empathy or understanding of the impact that its demands have on victims.

In light of this, it recommended that HMRC makes greater use of its current discretion to support pension scam victims left owing large tax bills and that it should do its upmost to provide them certainty where possible.

It also suggested that if HMRC is unable to make greater use of its current discretion to waive the tax due by pension scam victims, the government should consider whether legislation is required to give HMRC the option not to pursue the tax penalties of pension scam victims.

In his letter, Timms noted that the government’s July 2021 response to the inquiry report did not respond directly to these recommendations.

Instead, it stated that “where customers access their tax privileged pension savings before they are 55, HMRC has to collect the unauthorised payment charge that is due under the law” but also that, “where HMRC accepts that a pension scheme member is defrauded of their tax-privileged pension savings as part of a pension scam, they are not taxed on the money they have lost as a result of the fraud".

Timms has therefore requested clarification as to what treatment victims of pension liberation scams should expect from HMRC, and whether HMRC is monitoring the quality and consistency of the service and treatment it provides to pension scam victims.

He also queried what discretion HMRC has to waive unauthorised payments tax charges and how it uses this, and, if HMRC is unable to make greater use of its current discretion, whether the government will consider changing the legislation to allow HMRC the option not to pursue the tax penalties of victims of pension liberation fraud as recommended.

In addition to this, the chair asked how many unauthorised payments charges were levied on people who were victims of pension scams between April 2009 and April 2014, as well as how many cases the charge was reviewed in and what the outcome was in these cases.

The Pension Scams Industry Group (PSIG) has also previously raised concerns over HMRC’s treatment of pension liberation scams, calling for a change in the tax rules in its written evidence to the committee’s inquiry.

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