Synopsis: Pension liberation fraud cases on the rise despite warnings from UK regulators.

Date posted: Friday, July 03, 2015

Cases of so-called pension liberation rose last year, accounting for the vast majority of pension-related frauds in 2014, according to data collected by Action Fraud and the Office for National Statistics (ONS).

Of the 863 pension-related fraud cases recorded in 2014, 758 involved pension liberation; up from 719 the previous year. Action Fraud, the UK’s national fraud-reporting authority, first began recording pension liberation cases as a separate category in 2013.

Pension disputes expert Ben Fairhead of Pinsent Masons, said that the fact that reported cases continued to rise in 2014 despite increased warnings from the both The Pension Regulator (TPR) and the FCA was a concern. He went on to say:

“This might, however, simply reflect more individuals discovering belatedly that they have lost out as a result of pension liberation scams, perhaps where the original transfers were made much earlier. That said, notwithstanding warnings from TPR, there are still plenty of individuals who are significantly desperate for cash to be lured into these scams, even though they are sometimes aware that there are risks attached.

It will be interesting to see how the statistics for the current year compare once they eventually come through. Cases of conventional pension liberation (individuals releasing cash payments before the normal minimum pension age of 55) might well reduce through increased public awareness, a reluctance by those in the industry faced with making transfers into suspicious schemes to proceed, and possibly an evolving approach by the fraudsters choosing to target those aged 55 and above given the new flexibilities in place since April.”

Under rules governing occupational pension schemes, an individual can only claim pension benefits from the age of 55 unless doing so on ill-health grounds. Tax charges on unauthorised payments can be as much as 70% of the value of the payment. Changes to the law from April this year give members of defined contribution (DC) schemes more freedom to access their savings any way that they wish once they turn 55 without incurring heavy tax penalties, although the rules remain as they are for those that have not yet reached pension age.

Traditional pension liberation arrangements are designed to get around the restrictions by transferring money representing a saver’s pension rights out of their existing scheme into a new scheme, and then making the money available as a loan back to the saver either in whole or in part. As well as substantially reducing a pension scheme member’s savings through punitive tax charges and hefty introduction fees, any funds remaining in a pension liberation scheme after the initial payment tend to be invested in exotic, unregulated structures that do not live up to the advertised claims.

As of May 2015, over 1,000 people had already complained to the UK’s Information Commissioner’s Office about unsolicited calls or texts relating to their pensions this year. TPR, which re-launched its campaign against pension ‘scams’ last year, has said that scammers will likely evolve to keep up with the changes in the law and begin targeting people approaching 55, seeking to exploit their interest in accessing their pensions flexibly.

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