Self-employed miss relief on pensions

TENS of thousands of self-employed people who have taken out pensions are failing to get tax relief on their contributions. An extraordinary allegation about personal pension maladministration suggests that they could be hundreds, or even thousands of pounds, worse off than they should be.

The claim, quite separate from the flood of reports of mis-selling that the financial industry is trying to sort out, nevertheless raises yet more questions about the procedures used for selling personal pensions.

Ted Spratt, a Cheshire-based personal finance policy specialist, claims this month that as many as 11 per cent of self-employed people could be affected. This means that standard-rate taxpayers would be paying a third more than they should - £600 a year on a £200 a month policy, for example.

Mr Spratt, who works for Bespoke Financial Design in Macclesfield, says he has encountered many cases where the necessary Personal Pension Contributions Certificate (PPCC) has failed to reach the tax office. Without one, no tax rebate is given. And without tax relief, the value of a personal pension open to question.

Research by the Independent on Sunday this week discovered a worrying hole in the procedures, through which the self-employed can all too easily slip.

The salesperson, the accountant, the insurance company and the tax authorities are all involved - but none of them take responsibility for ensuring that tax relief is granted.

Insurance companies, which issue PPCCs with the other paperwork when policies are first taken out, do not subsequently check that the forms have been passed on, while the Inland Revenue says it is the taxpayer's responsibility.

Mr Spratt pins the blame primarily on professional rivalry between advisers and accountants. "Advisers are frightened of talking to accountants. They're frightened that the accountant will pinch the business, or pooh-pooh the advice given," he says. "The average salesman who sells a pension will say to the client `when the paperwork comes, there's a slip which needs to go to the accountant'. But he doesn't check it's been done, and the client doesn't realise it is important."

But which professional is responsible if the PPCC stays unnoticed with the policy documents?

Simon Philip, director of personal financial planning at Binder Hamlyn, the accountancy firm, has no doubts: "The responsibility is the adviser's, rather than the accountant's," he says. "After all, one of the reasons for going for a pension plan rather than, say, a PEP, is the up-front tax relief: it's a key part of the overall package. If I'd taken out a personal pension and two or three years later realised I had not got the tax relief, I would go to the adviser and ask why he'd been doing me down."

Gareth Marr, at the independent advisory firm of Moores Marr Bradley in Milton Keynes, holds the opposite view. "It's absolutely not the adviser's responsibility. The adviser does not deal with the Revenue on behalf of his client, unless of course the adviser is actually also the accountant. It's not the adviser's role to deal with the Revenue."

Mr Philip and Mr Marr both believe, however, that the problem is unlikely to be widespread.

Mr Spratt disagrees. A former independent adviser himself (he now runs a service identifying errors and omissions in existing policies), he says his research suggests that more than one in 10 policyholders may be affected. His figure of 11 per cent, revealed this month in a letter to a pensions trade publication, is based on a five-year survey of more than 200 pension policies.

He also criticises the common practice of failing to place personal pension proceeds under trust, an arrangement that would ensure that inheritance tax liability was eliminated in the event of early death and that payments were made promptly to the right beneficiary. "We are leaving our clients with many needless problems that we could have prevented with very little additional care, thought and knowledge."

If he is right, many people are affected. About 1.5 million people contribute to personal pensions (or their predecessor, retirement annuity policies) each year, paying £1.3bn in premiums - about £870 on average each. Even if only 1 per cent of policyholders are failing to get tax relief, this would amount to more than £3m unclaimed each year.

Ultimately, perhaps, the onus to be alert falls back on the long-suffering investor. "The surest advice would have to be to tell people to have their eyes open," says Ron Spill, at Legal & General. "Missing out on tax relief may not be sinful, but it is still an act of incredible omission. People should feel very bad about it," he says.

q If you fear that you are not receiving your rightful tax relief, check your documents to see if you still have the PPCC. If so, forward it to Inland Revenue and complain to your financial adviser. If you do not have one, check your tax allowances to see if you are receiving relief on your premiums.