Pension liberation scams threaten £600m savings

Pension liberation scams threaten £600m savings

Up to £600 million of pension savers' money is at risk because people continue to be hoodwinked by so-called 'pension liberation' schemes, a government minister has warned.

Pensions minister Steve Webb told MPs on the Work and Pensions Committee that the government and regulators had ‘turned a corner’ in their clamp-down on pension liberators.

Liberation schemes offer savers early access to their pension – which can normally only be taken at age 55 – but often fail to warn them that doing so will leave them with a huge tax bill and and the possibility of losing as much as 80% of their savings.

Pension liberators call people out of the blue and send text messages to try and convince them they can extract up to half of their pension savings with no ill effect.

The schemes work by transferring a person's pension savings to a new scheme run by the liberators who then provide a loan of up to half the money in the pension pot. The other half is invested, usually in risky, offshore funds which are not covered by the UK Financial Services Compensation Scheme. There is no guarantee that the remaining money will ever be returned.

Huge problem

The government has been working with the The Pensions Regulator, HM Revenue & Customs and the Serious Fraud Office as part of a taskforce called Project Bloom to stamp out abuse.

So far police have raided pension liberation call centres and shut down 500 schemes although Webb revealed the scale of the problem was still large.

He told MPs The Pensions Regulator was investigating 27 cases of suspected liberation worth £185 million and that a total of £420 million had so far been transferred to suspected liberation schemes.

He said: ‘The £185 million figure is the live cases that TPR is looking at, the £420 million figure is a cumulative figure that we know about, that has happened.’

Webb's comments follow an announcement by HMRC that it would abandon its ‘process now, check later’ strategy for registering and authorising pension schemes.

It said that scheme registration would ‘no longer be confirmed on successful submission of the online form’ and HMRC will now risk-assess each pension scheme before it is registered.

The fight against pension liberation will be helped by a court ruling this weeek that set a precedent for how the regulator deals with suspected pension liberation schemes. The judge ruled that pension liberation schemes are occupational schemes, not personal pension schemes, giving the regulator power to appoint independent trustees to the scheme over which it has concerns.

More to do

Tom McPhail, head of pension research at Hargreaves Lansdown, said HMRC’s changes would ‘help slow down the registration process and make it harder for the bad guys to set up pensions’ but he said more needed to be done.

‘I would like to see greater scrutiny of individuals; the administrators and trustees, plus a mechanism for HMRC to check these people are fit and proper to administer peoples’ life savings – it is a responsible job and there is more [HMRC] can do,’ he said.

Robert Graves, head of pensions technical services at Rowanmoor, a pension scheme provider, said: ‘We need a professional entity to be involved in running occupational pension schemes. We need some sort of accreditation We need more scrutiny of the people running the schemes…and we need some trust put back in the system.’

Consumer awareness

Graves said there were two types of people using pension liberation schemes: those ‘who are defrauded into transferring to a scheme on the belief they can get their money out early and without penalty’ and those ‘who know the risks…but need the money’.

The effort to warn people about pension liberation, including an advertising campaign featuring a scorpion and the tagline ‘Don’t let pensions become prey’, had raised awareness in the first group of people,’ said Graves.

However, he had concerns that those who were desperate for money were still not aware of all the risks.

‘There are people desperate for money and the only asset they have left is their pension pot but there may not be much left over if they decide to go ahead with pension liberation,’ he said. ‘Once the pension liberators have creamed off a fair chunk, they may then be subject to a large tax charge that could leave them owing money to the taxman…and left in a worse position.’

Source:, Michelle McGagh on Oct 25, 2013 at 11:13


About Us

We are a firm of highly experienced independent financial advisers based in Leamington Spa. Our core values are simple - integrity and professionalism - and have seen our business grow mainly through customer referrals and reputation.

Latest News

Get in Touch

Beaufort Wealth Management Ltd,
7B Tournament Court,
Tournament Field
CV34 6LG
01926 460156

Beaufort Wealth Management Limited is an appointed representative of The Tavistock Partnership Ltd, which is authorised and regulated by the Financial Conduct Authority. FCA No: 469862. Decisions should not be taken based solely on the content of the website and individual advice should be sought first. Regulations, levels and bases of taxation are subject to change and individual circumstances. The information contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. No responsibility is accepted for the accuracy or content of external websites.