Pension liberation fraud may seriously damage your wealth

It starts with an innocent looking text message or email: "Records show that your pension has lost a minimum of £3,904.32 since 2007. To get that back asap complete the form at"

You may also receive cold calls, or spot pop-up adverts on the Internet, appearing to come from financial advisers. Scamsters know that, in these difficult times, people are looking for ways to supplement their income, or pay off debts.

Pension liberation fraud occurs when people are enticed to access their workplace or private pension before age 55. Except in cases of serious illness, and under a few legacy arrangements, the minimum age for taking your pension is 55.  This is because the government gives generous tax reliefs to encourage people to save for retirement.

Sometimes pension liberation fraud is confused with pension unlocking, which allows people aged over 55 to access their tax-free cash. This is not illegal but comes with high fees and a reduced retirement income, so should only be considered after taking independent financial advice.

The fraudsters who peddle pension liberation schemes, sometimes called ‘pension loans' or ‘cashbacks', operate by encouraging you to transfer your pension pot to a fake pension scheme. Of course, they don't tell you it's bogus; they disguise it by setting it up under the HM Revenue and Customs (HMRC) tax regime as a registered pension scheme. They let you access the fund, after deducting high commission fees (up to 30%). But they don't warn you of the potentially serious tax consequences.

Taking money out of your pension when you are aged under 55 is known as an unauthorised payment. This means that, when the scam is uncovered by HMRC, you will get hit with a tax bill, which could be more than half of the value of your fund.

You might wonder why trustees and administrators of workplace pension schemes don't stop members' pensions being transferred to dodgy schemes. Certainly they are aware of this problem and carry out checks, but they will not necessarily be able to spot a fake scheme if it has been properly registered. Once you have completed the discharge forms, trustees have an obligation not to hold on to your money and must pay transfers within a set period.

The Pensions Regulator has recently highlighted this issue and you may have read press coverage suggesting that individuals have handed over more than £400 million since 2008. A leaflet with more information and case studies can be found at: and if you think you may have been targeted, you can report it to Action Fraud on the hotline: 0300 123 2040.

Pension liberation fraudsters could seriously damage your wealth, but they won't get to you if you heed the advice on protecting yourself and your retirement income.

Date published: 01/05/2013

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