HMRC has recently concluded a consultation on ‘Raising standards in the tax advice market: professional indemnity insurance and defining tax advice’.
A response to the consultation is awaited but, in the meantime, given the relatively low amount of coverage that it received in the pensions media, it is worth highlighting some of the concerns that have been raised by trade associations in the pension industry.
In my view, these concerns are well founded, in particular the prospect of the changes preventing helpful guidance and assistance being provided to pension scheme members on tax matters.
Members of pension trade bodies, from the Association of Consulting Actuaries (ACA) to the Society of Pension Professionals (SPP) and all those in between, provide advice and other services to employers and trustees and this invariably and often unavoidably includes taxation matters.
To take just one topical example – ‘GMP equalisation’, advice on addressing GMP inequalities almost always necessarily includes tax issues. Also, the commentary on tax considerations can be woven into the overall advice to clients meaning that tax advice forms part of wider pensions advice, guidance and other services.
In their responses to the HMRC consultation on tax advice, trade bodies have rightfully emphasised that any new safeguards to be introduced must work effectively within the existing legislative framework and that regulation of tax matters cannot simply be isolated from other pensions matters.
They also highlight existing regulations, codes of conduct and professional standards that trade body members can be subject to.
Specific concerns raised by the trade bodies include –
- Requiring anyone that provides tax advice to have professional indemnity insurance (PII) cover, whilst appearing sensible, is unlikely to change behaviours of ‘rogue operators’. More generally, by simply mandating PII it does not necessarily follow that trust in the market will be increased.
- Any definition of tax advice needs to framed in a way that does not create scope for rogue operators to carve themselves out of coverage. This would be harmful to firms who are doing the right thing and have put appropriate PII cover and other protections in place.
Responses from trade bodies also reiterate that tax services provided by many members are frequently integrated with other professional services; i.e. tax matters are invariably an integral part of pension activities. They are, therefore, already provided within a robust framework.
There is also the fine line between ‘guidance’ and ‘advice’ to consider. The boundary between the two is not always clear, and has resulted in some practitioners erring on the side of caution. This can be to the detriment to the consumer who may turn to less reliable or scrupulous sources for support.
Overall, responses from trade bodies to this important consultation, whilst recognising the good intentions of the proposals, raise very real concerns around unintended consequences that have the potential to do more harm that good.
Pension firms and providers, as well as their clients and customers, should look out for the Government’s response to the consultation and follow developments closely. Measures that improve the quality of tax advice are welcome provided that unintended consequences, such as make accessing appropriate advice harder and more costly, are avoided or managed.