How to avoid being a victim of pension liberation

Published by Andrew Hague on

Pension scams are on the increase, despite HM Revenue & Customs making it harder for bogus pension schemes to operate and The Pensions Regulator re-launching its public awareness campaign. Any change in regulatory approach usually leads to scammers changing their tactics and using more sophisticated methods to get hold of people’s pension savings.
"HMRC will tax the transferring member on incentives they receive for transferring funds, such as a cash bonus of 10% of the transfer value."

One tactic is to encourage people to move their pension savings to a pension scheme set up by company that has no established connection to the transferring member.  Pensions savings can be particularly at risk if the receiving scheme has a sole trustee: without the obvious risks of placing your pension monies in the hands a sole person you may not know, one has to wonder what would happen to the money should that sole trustee die.

Enticements are being offered to attract people but these offers will usually be traps to encourage you to switch pension savings. HMRC will tax the transferring member on incentives they receive for transferring funds, such as a cash bonus of 10% of the transfer value. Once a transfer has been made, the transaction is irreversible, and your savings can be lost in a moment.

So what should you watch out for?

  • you may be approached out of the blue, possibly being offered a free pension review service
  • you may be attracted by talk of high pension charges and low investment returns in your current scheme (even if it is a final salary scheme) compared to low pension charges and high investment returns in the new scheme
  • you may be asked to become an employee of a company that you have no connection with
  • you may be asked to withhold information from your current pension provider
  • you may be encouraged to speed up the transfer of money to a new scheme, and may be presented with a pre-filled in application form to sign 'there and then'
  • you may be told of one-off investment opportunities, legal loopholes, a cash bonus and government endorsement
  • you may be asked to transfer your money or investments overseas
  • you may be offered access to your pension money before age 55 or a tax-free cash sum of more than 25% of your pension pot: these options are not usually permitted in pensions other than in particular circumstances that your existing pension provider can explain

Reputable firms will not use any of these practices, and if in any doubt, do not take any action but seek advice from an adviser that is authorised by the Financial Conduct Authority or call The Pensions Advisory Service.

The government’s regulatory authorities have issued information on pension scams which can be found here. Please read these before proceeding with any transfer of your pensions arrangements.

Remember, if it looks too good to be true, it usually is.