The Occupational Pensions Regulatory Authority (Opra) is warning intermediaries and pension fund tru...
The Occupational Pensions Regulatory Authority (Opra) is warning intermediaries and pension fund trustees to be on the lookout for a new form of pensions scamming which could lead pensioners with as little as 30% of their original pension pot.
Advertisements offering pension liberation services are said to have attracted the attention of between five and ten cases so far, says Opra, because they claim to convert a person's pension into a tax-free lump sum, in a practice also known as trust busting.
Organisers of these liberation schemes use adverts to attract people who urgently need cash and a targeted campaign is being waged, through the local press, magazines and on the internet, particularly in areas where there have been recent high levels of redundancy, says Nick Edman, spokesman for Opra.
An investigation has been launched by Opra and the Inland Revenue after adverts were discovered which claim to offer to turn pension benefits into a tax free lump sum.
People offering this service usually charge high commissions ranging from 20 to 30% of the individual's total fund, says Opra, and investors may then be hit with a 40% tax charge.
Transactions are often arranged using offshore companies and bank accounts. Typically, the individual's existing pension scheme will receive a request from the "pension liberator" to transfer their pension money to a scheme which is nothing more than a fictitious new employer and company name created solely for the purpose of trust busting.
Few cases have so far arisen, says Edmans, however, a concerted campaign is be waged in certain areas of the country so trustees and members of smaller pension schemes need to be warned of the dangers of such schemes.
Larger pension providers are unlikely to allow such transfers from pensions funds to pass through without being alerted to this version of trust busting, says Harriet Maunsell, chairman of Opra. However, consumers, advisers and trustees alike need to be aware of the financial threat to an individual's pension pot.
"If you get involved in this kind of scheme you are taking a high risk with your pension benefits - the rewards are questionable to say the least, and the organisers are likely to be unscrupulous. As well as paying up to 30% of your money in commission to the 'liberators' you could also end up paying as much as 40% tax on the total amount as well. Altogether that means you could lose 70% of your pension money."
The majority of financial advisers (85%) believe the number of self-invested personal pension (SIPP) providers will continue to fall in the coming year, according to Dentons Pension Management research.
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