Pension Scheme Administration : Nilebond Ltd v HMRC

In the case of Nilebond Ltd v HMRC, Nilebond (N) managed a registered pension scheme on behalf of a sponsoring employer, Sauvage (S). In 2017, the scheme loaned £37,500 to S from the scheme’s funds, which was secured through a floating charge and fully repaid by November 2018. HMRC issued a scheme sanction charge to N, asserting that the loan constituted an “unauthorised employer payment.” N appealed the charge.

According to HMRC guidelines, a pension scheme can issue a loan without incurring a charge if the loan is “authorised.” To be authorised, the charge must be registered with Companies House; failure to register renders it unenforceable in priority to other creditors. In this case, N registered the charge retrospectively in 2019. However, the loan no longer existed at that time, leading the Tribunal to conclude that the charge did not become authorised, thus upholding the sanction as valid.

This case serves as a reminder of the importance of diligent administration in pension scheme management, as neglecting details can result in substantial penalties. In this instance, a failure to comply with administrative requirements led to a 40% charge, despite the loan’s prompt repayment.

HMRC has conditions that must be met for payments to be authorised. Payments must satisfy these conditions to be deemed unauthorised. Some common examples of unauthorised payments include:

1. Trivial lump sums exceeding £30,000
2. Continued pension payments after the member’s death
3. Balancing payments made directly to the member when a scheme incorrectly calculates the member’s pension pot following a transfer of funds or annuity purchase

Additionally, most lump sum payments made to cash in or access pension funds before the age of 55 are considered unauthorised, with some exceptions, such as:

1. The member is retiring due to ill health
2. The member having the right under the pension scheme to access their pension before age 55, as of 6 April 2006

Certain transfers of pension funds within a scheme may also be categorised as unauthorised payments. Therefore, following HMRC guidance in pension scheme administration is crucial to avoid incurring costly penalties for non-compliance.

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