City Trustees - part of Mattioli Woods

News and Media

18 March 2013

HMRC attacks pension liberation schemes

The Pensions Regulator in conjunction with HM Revenue & Customs has recently launched a campaign against pension liberation schemes.

Pension liberation

Pension liberation is also known as 'pension loans' or 'pension scams', and is a transfer of a scheme member's pension savings to an arrangement that will allow them to access their funds before the age of 55. Accessing pension savings before the minimum retirement age of 55 is only possible in certain circumstances, such as serious ill health. This activity of pension liberation can be fraudulent, where members are not informed or are misled as for the consequences of entering into one of these schemes. Fees from 10% to 20% are not uncommon but there are cases where fees of up to 50% have been charged. In addition, pension liberation can result in tax charges and penalties of more than half of the member's pension savings. Those being targeted are also often not being told of the potential tax implications.

The Pensions Regulator investigation

Pension liberation schemes usually entice members to transfer their pension through spam, text messages, cold calling or website promotions with a promise of being able to release a portion of the cash before age 55. Even the Minister for Pensions has been targeted by such scams. As a result of this, the Pensions Regulator is now investigating 21 pension liberations cases after monies transferred through arrangements have doubled from £200 million in 2011 to £400 million in 2012.

Information campaign

In addition, the Pensions Regulator has teamed up with the Financial Services Authority, HMRC, Serious Fraud Office, National Fraud Intelligence Bureau (NFIB), Serious Organised Crime Agency, Action Fraud and The Pensions Advisory Service to launch an information campaign against such scams, which carries a distinctive scorpion image. The campaign sets out five steps on how to avoid becoming a victim, as follows:

  1. 1) Never give financial information to a cold caller
  2. 2) Check the company's background and make sure they are registered with the FSA
  3. 3) Ask for a statement showing how your pension will be paid at retirement and question who will look after your money until then
  4. 4) Seek unbiased advice from an independent party
  5. 5) Never be rushed into agreeing to a pension transfer

Role of trustee and scheme administrator

Scheme administrators who receive a transfer request and detect the warning signs of liberation, such as pension money being passed back to the member before age 55, should consider whether or not to make the transfer and report any concerns to Action Fraud. Trustees and scheme managers will be required to demonstrate that they have taken steps to establish the legitimacy of an arrangement if they delay a member's transfer request. However, there is still an issue for trust-based schemes, where trustees have a duty to carry out a transfer where legislative requirements are met.


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