Pensions Liberation and other pension scams
Pension liberation is an unauthorised access to taxable income which will result in a sanction charge being enforced by Her Majesty’s Revenue & Customs (HMRC) against individuals. Pension liberation is usually associated with fraud and accessing you pension benefits before the age of fifty five. In practical terms if you are under fifty five and have deferred benefits in the LGPS and decide to transfer said benefits to another scheme in order to take these benefits as cash before retirement, this is pension liberation.
Pension Liberation should not be confused with ‘pension unlocking’ which allows people over age fifty five access to up to a quarter of their pension as a cash payment, but equally leads to less income in retirement or payments to dependants on death in service.
What happens if I liberate my pension?
- Once a pension is ‘liberated’, there will be little (or no) income from it at retirement
- Death benefits may be lost – so no income for your dependants should you die in service
- The organiser of the liberation is usually paid a commission directly out of the fund (in some cases up to 30%)
- In transfers of this type, tax is payable, at 55% on the transferred amount
- Failure to inform HMRC incurs penalties and interest, in addition to the tax
Converting a pension into cash might sound like an easy and very attractive means of raising money during these times of uncertainty and financial difficulty, however it should be noted that generally, if something sounds too good to be true, it invariably is.
If you think you may have been a victim, or if you have information regarding pension liberation fraud, contact Action Fraud on 0300 123 2040. If you, or someone you know, has been contacted about transferring a pension to another scheme and are concerned about whether it is legitimate, then contact The Pensions Advisory Service (TPAS) helpline for information and guidance on 020 7932 5791.
Advice from Pension Wise on how to spot a scam
New Pension changes, known as Freedom and Choice, became law in April 2015. This means that it is now possible for individuals ages 55 or over to access their pension pot as cash. Unfortunately these new freedoms have led to a rise in scammers trying to take advantage of individuals looking to invest their pension pot.
It is more important that ever to be able to spot a scam.
- Watch out for cold calls, text messages, personal visits, or any other means through which an individual may make contact with you.
- Access offered to a pension pot before the age of 55. You cannot release your pension pot before this age unless you are allowed access under ill-health grounds.
- Look out for any companies that encourage you to take out a large lump sum or your whole pension pot in one go, and to let them invest it for you.
- Any companies asking you to transfer money quickly. Some scams have been known to sent documents via courier and pressure their target to sign up on the doorstep.
- The use of words and phrases such as; ‘pensions liberation‘, ‘loan‘, ‘loophole‘, ‘free pension review‘ or ‘one-off investment‘ are often signs of a scam.
- You should be wary of investments described as ‘unique‘, ‘overseas‘, ‘environmentally friendly‘, ‘ethical‘ or in a ‘new industry‘.
For further information please visit the Pension Wise Website.