Fighting back against the pension liberation scammers

A new body has been formed which aims to take the fight to the pension liberation scammers by cutting them off at the source.

It has so far cost people more than half a billion pounds, a sum that's growing fast each day as more of the squeezed middle in middle age become ever more desperate for cash. Yet it's not a get-rich-quick scheme or the latest boiler room commodity nonsense.

The victims are not after more, just what they consider to be their own money - their own cash saved up for their pension.

The scam is “pension liberation” where companies, often offshore, claim they can release the value in your pension before the minimum legal age to take a UK pension – currently 55 (with some different rules for those with terminal illnesses). It's not the same as “pensions unlocking” where someone 55 or older can take part of the value of their pension pot before retiring (this can be problematic as well, although it is legal).

Now a new body, The Pension Liberation Industry Group, has been set up by the industry to combat the racket – tackling it from the pensions administration side rather than hoping pension savers will heed warnings. The pensions world now realises that it is easy to rip off people who need money fast, no matter what the consequences. That's why all of their advice to steer well clear of liberation has so often fallen on deaf ears.

Stopping pension liberation

The way forward now – and it's so urgent that action is expected within three months – is to prevent the money leaving legitimate schemes in the first place. The stop pension liberation movement will stress the role of pension trustees and administrators without whom nothing can move. It will alert them to the rip-off and say it's their job to prevent retirement money going into illegal or dubious schemes.

The group will also press for tougher legislation.

There have been alerts aplenty about pensions liberation schemes, which generally involve either obscure loopholes or downright illegality. Whatever route, it's very costly for pension holders. They can be left with virtually nothing for their retirement.

Someone with a modest pension pot of £20,000 will not see £20,000 liberated. This person could pay £4,000 (20% but some are even more expensive) to the liberation company. Then, and the liberator will not mention this, there is a potential 55% tax charge (£11,000) because HMRC says pension pots are for pensions, not to meet bills or to pay for a new car.

That leaves £5,000. It could be worse. If the Revenue decides that there was illegality involved, even if the pension owner was unaware of this and had already paid fees, the tax charge could go up to 70%, or £14,000. That would see our hapless pension owner left with just £1,000.

The cost of pension liberation

The new organisation – which would be better named the Anti-Liberation Group – estimates that so far some £420 million has ended up with scam liberators. After tax and super high commissions, that probably means victims have lost about £330 million.

But that's not counting the future effect of losing an income for the rest of their lives. The money that disappears into scam schemes now will never be replaced. When the pension holder reaches normal retirement age – say 65 – they will not have the benefit of the money they have lost (plus perhaps 15 to 20 years of further investment growth).

Take control of your pension the right way with a SIPP

How the scam works

The liberation scam works because most people don't fundamentally understand pensions, let alone the alphabet spaghetti of SIPPs, SSASs and QROPs. These can all be legitimate, but complex, ways of moving money from a workplace or personal pension.

But misused, the only winners are the scam perpetrators.

Like most scams, the initial contact is often via email or a text message. These claim to offer a free review of your pension and wider financial needs. If you say that you could use a lump sum now, they will tell you that your pension is the best source of quick money. Some will dress this up as a “pension loan”, an “advance” or “early retirement cashback”. Once you agree, funds move from your present scheme into one promising instant access.

Often these are overseas plans – legitimate and useful for those emigrating to countries such as Australia or South Africa, but a nasty fraud on those intending to remain in the UK or Europe.

Fees are often unclear, especially as any money resulting from the liberation may then be “invested in a special vehicle”. This, needless to say, results in yet more commissions for the perpetrators. And further opportunities for all the money to disappear.

It's understandable why people desperate for extra cash fall for these schemes. So cutting them off at source by blocking the transfer is the best way to protect potential victims from the racketeers who prey on them.

Take control of your pension the right way with a SIPP

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