UK - Abbey Life Trustee Services has been ordered to pay eight years of backdated tax to members of the Irranely pension scheme.
The direction comes after the pensions ombudsman upheld a claim by two scheme members that Abbey Life had failed to protect the tax approval status of the self-administered scheme when Irranely was placed into liquidation.
The pension fund, which should have been exempt from tax, has been taxed since November 1994.
Abbey Life contacted Irranely’s receivers in an attempt to amend the scheme rules but was told that, as liquidator, it could not commit to third-party activities.
But the pensions ombudsman, David Laverick, said Abbey Life should have done “considerably” more to protect the approval of the scheme.
It also emerged that in May 1996 Abbey Life had incorrectly informed the members that the loss of tax approval would not affect their tax relief as interim approval from the Inland Revenue had been granted. In fact it was not until October 1999 that it was made clear to the members that their benefits would be subject to tax.
He advised: “Abbey will calculate and advise the complainants of their benefits on the assumption that the scheme was still approved.
“At the same time, Abbey will also calculate the tax payable under the current unapproved status if the complainants were to draw their benefits from the scheme immediately and inform Baker Tilly [the company receiver] of this.”
Laverick said that any tax payable as a result of the complainants starting to draw their benefits should be reimbursed by Abbey Life and the Baker Tilly in the ratio of three to one.
Linklaters pensions litigation partner Mark Blyth said: “This determination demonstrates the potentially disastrous effect of failing to protect the tax approved status of the scheme.
“In this case, as this resulted from maladministration on the part of the employers and Abbey Life, which issued the policy, they were both directed to compensate the member.”
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