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Where Taxpayers and Advisers Meet

Reverse pension contributions?

cliffordpope
Posts: 81
Joined: Thu Jun 24, 2010 8:45 am

Reverse pension contributions?

Postby cliffordpope » Fri Jul 17, 2020 8:06 am

It has been alleged that employer contributions to an employee's SIPP may contravene the terms of the company Mem & Arts. The current directors seek to reverse the pension contributions made 6 years ago by their predecessors. The payments were allegedly unlawful but not illegal.
As a settlement it has been suggested that the contributions could be reversed.

Is this possible?
What would be the tax implications for the company, having received corporation tax relief on the contributions?

The contributions have been invested in commercial property, currently standing at a capital loss.

someone
Posts: 431
Joined: Mon Feb 13, 2017 10:09 am

Re: Reverse pension contributions?

Postby someone » Fri Jul 17, 2020 10:03 am

If they weren't illegal i don't think they can be reversed, even with the employees consent unless they exceed the annual allowance for the year in question (and note for tapering purposes it's still 40K even if the employee had a tapered allowance)

Two data points - an over-payment into a pension that exceeds the tapered allowance but is below 40K cannot be reversed - and a company that continued to pay pension contributions to an ex-employee by mistake for several years couldn't get (any) of them reversed (the latter one is from over 20 years ago though so the situation might have changed)

I'm reading between the lines but I'm assuming the employee had some hand in causing the company to make these payments rather than it being a completely isolated employee with no hand in the mistake and the employee is trying to "make good".

Assuming that is so then i think the only thing the employee can do is repay from available funds.

If it's a company mistake then I think the company should swallow the hit. I think at most they might be able to get the employee to pay back a year or two but I'd want legal advice as a current employee might feel pressured to make unnecessary repayments to protect their job.

cliffordpope
Posts: 81
Joined: Thu Jun 24, 2010 8:45 am

Re: Reverse pension contributions?

Postby cliffordpope » Sat Jul 18, 2020 8:49 am

If they weren't illegal i don't think they can be reversed,
My fundamental questions are:

Could a court override the law and nonetheless order them to be reversed?

If reversed, what happens to the tax relief - would the company have to repay it?

If not reversed, but compensated from available funds, would the company be liable for tax on the income?


The tax question is currently a sticking point in negotiating a settlement.

someone
Posts: 431
Joined: Mon Feb 13, 2017 10:09 am

Re: Reverse pension contributions?

Postby someone » Sat Jul 18, 2020 10:03 am

A court can only enable a repayment if such a remedy is available in law.

You'd need to either find a case where this has happened before, or find a barrister who will give you an opinion on that.

On the tax question - I think it depends on what reasoning the court gave for reversing the repayment:

If the court deemed that the payments never happened then the tax saved by the company would have to be repaid by the company to HMRC.
(Everybody put back into the position they would have been in if the payments had never happened)

If the court deemed that the payments should be refunded then I'd guess (and it's a wild guess) that the tax penalties would fall on the employee (I have this vague idea that it's a 55% tax charge for money withdrawn from a pension other than in the course of normal pension payments/tax free lump sum but that's from reading various HMRC things about penalties if you fall for a pension scam)

My reasoning for my guess is that if the court required a repayment rather than a reversal then the original payments would still have happened and so the tax relief received by the company would still be valid but HMRC will still expect their pound of flesh.

But I don't think you're going to get any sort of useful opinion from anybody online anywhere, whether it's a legal or a taxation site. I think you're going to need (presumably expensive) expert advice on a very obscure area of tax and pension law.

I don't think you're going to be able to get a court to approve a settlement that includes repayment/reversal of pension contributions unless you've taken expert advice that such a remedy is available in law to the court (BICBW). The pension company might also fight any such settlement (OTOH they might give you approved wording to get the courts approval on)

cliffordpope
Posts: 81
Joined: Thu Jun 24, 2010 8:45 am

Re: Reverse pension contributions?

Postby cliffordpope » Sat Jul 18, 2020 8:35 pm

Thank you very much

ben_power
Posts: 28
Joined: Tue Feb 27, 2018 8:34 pm

Re: Reverse pension contributions?

Postby ben_power » Mon Jul 20, 2020 10:35 pm

Some excellent legal points raised here by 'someone'.

Without knowing how this situation arose and why the company chose to pay into an employees SIPP rather than the company scheme it's difficult to determine where the liability is. In my experience, it is unlikely that the receiving scheme (SIPP) has had any unauthorised contributions, providing the payments fell within the members AA etc, even if it exceeded the AA the SIPP provider is likely to have identified this and offered options for paying any additional tax lability. The issue here clearly isn't AA related anyway.

I would assume the liability is with the employer. Why did they agree to pay into the SIPP? Surely it would be down to the employer to know their own company rules and not the employee. Is it perhaps that the employee was in a senior position within the company and asked for the payments to be made separately to the company scheme? If that it true I would still argue that the liability should be on the company to check first.

I have never know a situation like this and I suspect it is very unlikely that the SIPP provider will facilitate a withdrawal without advice. Normal rules would apply to any withdrawal and beyond that there are other major issues here. Withdrawing from the SIPP, even to rectify an error could have a devastating impact to the future benefit of a SIPP. MPAA rules may apply restricting future contributions and that's on the assumption the member is over 55 in the first place.

You mention that the funds were invested into commercial property. If so, it is possible, likely even, that the SIPP has liquidity issues, you can't just sell half a building. If the SIPP contains commercial property funds then again, liquidity issues may be present as some of the major funds have been suspended due to both Brexit and COVID-19 issues, when they reopen is will also be expected that there will be additional cost for withdrawals (to try to negate the mass rush to withdraw).

An actuarial calculation of what was invested, charges applied, investment returns and changes within the SIPP would be needed and this is an enormously complex, bordering on impossible calculation.

I would argue the only real practical solution here would be to fund the payments from external assets, again, on the assumption they exist.


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