Pensions liberation promises to put your pension money in your hands ahead of schedule. All it does is destroy your retirement!
Early next month, the directors of Hawkhurst Capital Plc will hear the ultimate death knell for their company. That's assuming they attend the final liquidation hearings in the High Court in Manchester. The company was placed in provisional liquidation in the public interest and the official receiver appointed in September.
The Insolvency Service will reveal more details at the hearing. But that will be almost three years to the day since the Surrey-based company, formerly known as Normandy Mining Plc, was delisted from the Frankfurt open market, which offers trading facilities to micro companies. It failed to produce a prospectus or have a €500,000 value or have shares with a minimum value of ten euro cents.
What did Hawkhurst actually do? The answer is not a lot, other than selling its worthless shares to those who wanted to cash in pension plans early. Under present UK law, you have to keep a pension until a minimum of 55. Just how much it took and how many savers were involved will be clearer in November.
Liberating you from your pension savings
This premature encashment that Hawkhurst and dozens of other organisations promote is known as “pensions liberation”. In truth what you are actually liberated from are your future retirement earnings. Hawkhurst, subsequently the subject of a boiler room warning from the Financial Conduct Authority, had come up with a scheme which promised to release retirement cash if planholders bought its valueless shares.
This week HMRC announced a crackdown on UK-based pensions liberators. It said they “use increasingly more sophisticated models to encourage taxpayers to put their hard-earned pension savings at risk through liberation”. Some are so complex that they would require many pages to explain, but all are set up by fringe financiers who can smell a quick and substantial return from innocent investors.
The taxman wants to protect pension tax relief, but also to safeguard retirement income. If someone 'liberates' and spends their cash, then they do not have a pension.
[SPOTLIGHT]HMRC says: “Retirement savers are being misled by introducers or advisers who use mass-marketing techniques like spam text messages, cold calls and website promotions to encourage people to release a proportion of their pension as a lump sum or loan before age 55.” Some schemes involve plans intended for those emigrating (legitimately) to Australia, New Zealand and South Africa, but are sold to those with no intention of leaving the UK.
The tax folk warn: “Individuals are often not aware that a large part of their fund will be deducted as fees, and that there are consequences for accessing your fund before the law allows. In addition, individuals are not always aware that their remaining pension pot may be transferred into high risk and entirely unsuitable offshore investments which may not provide adequate, or indeed any, benefits on retirement.”
How the pension liberation scams work
There are dozens of firms online offering just that trap. One promises “77% of pension value unlocked”. Just where does the other 23% go?
Another, set up a few months ago and run by a man who calls himself an “introducer to products”, is more specific. It promises “appropriately regulated and indemnified” chartered tax advisers, tax solicitors, pensions transfer specialists and administrators. The small print on this site makes it clear that the firm is not regulated in any way. The new HMRC attack will make it far harder for these people to peddle their dubious wares, but not impossible.
One site, appealing to those with debts, offers “up to 80%” in cash to those with at least £60,000. A second option, it says, is to transfer the pension into a SIPP and get up to 40% of the investment as a cashback from commission. This is not real commission, of course, but an attempt to find a legal loophole in the rules.
Say you have a £100,000 pension. Transferring it to a SIPP always incurs a cost. What if that commission is 80% and not the usual 1% or so? Then the investor can get a chunk back via a commission rebate. It may already be against HMRC rules, but these are often not acted upon until after the cash has been spent.
A third choice is to “submit your details to a UK-based SIPP expert” who will find “guaranteed returns of 10 to 15% a year.” This way, it says, “you make your pension work better and receive real growth”.
Few investments have ever produced consistent returns at that level for more than a year or two. Guaranteeing them is impossible. In any case, a guarantee is only as good as the company offering it.
Other schemes promise to lend you back your original pension cash. But they charge ludicrous upfront fees and high interest.
You will lose all of your money
Using these schemes risks losing all your money in worthless investments with ultra high costs. On top of that, HMRC can chase you for a special 55% tax charge because you have broken the rules of all pension schemes which give tax relief on the way in, but levy income tax on the eventual retirement income.
Taking the entry relief and then grabbing the money before it can be taxed on exit is evasion.
The new HMRC initiative will make it harder for dodgy professionals in the UK to claim their schemes are registered and more difficult for them to transfer savings from legitimate plans to their scams. But it will take time to bite and, even then, operators will try to find a way around regulation. They always do.