In his third blog for Sipps Professional, Andrew Roberts, chairman of the Association of Member-Directed Pension Schemes, says farewell as chairman of AMPS and looks at the importance of 'good faith.'

Next week, I will be saying goodbye to AMPS after six years on the committee. During my time on AMPS, I have met all manner of people working for SSAS and SIPP firms: early adopters, technical experts, administrators, compliance officers and, yes, even client-facing staff. All of them extremely expert in understanding the workings of self-invested pensions.

It is clear to me that they all share common ground: to do what’s right for their customers. I cannot recall a single discussion where this was not the motivator. This makes it harder to accept industry criticism knowing that we have been acting in good faith.

Good faith, as it applies to pension scheme administrators, is discussed in Finance Act 2004 – the key legislation determining tax treatment of pensions. The Revenue’s view of this is found on RPSM page 04104870 which says that the good faith protection is “aimed at the situation where the scheme administrator has been misled or been given incomplete information, by the member or employer leading them to assume wrongly that the payment was an authorised payment.”

Across the country, final salary scheme administrators are wondering quite how much due diligence they are expected to conduct before allowing a member to transfer to a newly registered pension scheme, for fear that a new scheme may be a liberation vehicle.

How might these good faith provisions apply in these circumstances?

Given the campaign by the Pensions Regulator, I expect that the transferring scheme will now seek assurance from the member that the transfer is not designed to liberate their pension savings. Further, that the receiving scheme will have to sign a declaration confirming that the transfer value will be applied to represent rights under a registered pension scheme in connection with that member. And finally, that the Revenue will be contacted to confirm that the receiving scheme is indeed a registered pension scheme.

If the scheme administrator relies on these three statements and one or more are later deemed incorrect, is that sufficient for the good faith provision to apply, as clearly they have been misled? Perhaps not.

Another condition of the good faith provisions is that “it would not be just or reasonable for the scheme administrator to be liable to the scheme sanction charge”. This creates the legal doubt and the uncertainty as to what level of due diligence a scheme administrator should undertake. We know that there is no publically available list of registered pension schemes that are not allowed to receive transfers, so it is up to each scheme administrator to take a view.

The good faith provisions only apply once a scheme sanction charge has been raised. At this point, it is costly for both the scheme administrator and the taxpayer to go through the appeal process.

So as I step down, I pray that the Revenue will focus its attention on applying the scheme sanction charge to the receiving scheme and only raise charges against the transferring scheme in extreme cases.
Andrew Robert is chairman of AMPS and works for Barnett Waddingham.