Hannah Brenton looks at the murky world of pension ‘liberation' schemes...
‘Withdraw Your Pension NOW,’ booms an online advertisement, ‘You can’t sell your UK Pension early BUT you can transfer to cash FAST.’
Through website promotions, cold-calls and adverts like the one above, members are being encouraged to unlock their pension and transfer funds to ‘pension liberation’ schemes, in exchange for immediate access to cash or a loan to be paid back before retirement.
While some of these schemes are legal if the member is aged 55 or over, The Pensions Regulator (TPR) warns hundreds of millions of pounds have illegally been ‘liberated’ from pension funds and thousands of members have lost some or all of their retirement savings.
Regulators take aim at pension 'liberation’ schemes
Members can also be hit by unexpectedly high fees, with liberation companies typically taking a cut of 20-30% of transfer values, and could also be liable to pay charges to HM Revenue and Customs.
TPR says the schemes often work by transferring some of the member’s pension fund into high-risk or opaque investment structures, frequently based overseas and with no guarantee that members will get their money back if something goes wrong.
TPR figures reveal known liberated funds rose to nearly £200m at the end of 2011 and the regulator expects this will have increased in figures to be published in the coming weeks.
In fact, TPR is so concerned that it will launch an awareness campaign in the next month, working with the Financial Services Authority, HMRC and the Serious Fraud Office (SFO).
Pension liberation schemes were discussed at a Trades Union Congress meeting last week.
Debra Bow, of the Union of Shop, Distributive and Allied Workers (USDAW), told Professional Pensions, IFAonline's sister title, that in the past month alone, four of the union’s members have been contacted by 'liberators'. In one instance, a member received a message on his mobile phone, she said.
“Four might not sound like a lot, but to have four members on this specific issue in as many weeks we think possibly a lot more people may have been contacted but we are just not aware of it,” she says.
“The gist of it is that they have been contacted by companies that have offered to give them a loan basically without any need for credit checks or any security.
“They are then told that if they transfer paid-up benefits, they will be given a loan in return and then that has to be repaid by the time that they retire.”
Bow says the offer may be attractive to union members who are not particularly well paid and may be struggling with debts. She believes the companies are adopting “sophisticated” approaches and may target members who have recently been made redundant.
“We are trying to stop poverty in retirement and this is just ridiculous – I cannot believe that it is happening,” she adds.
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