Pension liberation ‘scams’ and how to avoid being caught out by this fraud

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Hi everyone and welcome to my latest blog post. I had planned to cover a couple of financial topics in this issue but decided instead to concentrate on one. This was brought home to me when I was referred to a couple seeking mortgage and protection advice where the male aged 46 casually asked me to look over pension documents that he was about to sign and send off in acceptance of an offer by a company to liberate his pension.


The documents were well presented, offer looked very attractive. After close inspection I had to tell him that the figures presented bore no relation to reality, there was absolutely no reference to the implications and believe me there are many not to mention the company charges which weren’t even disclosed.


Sometimes I get the feeling that there are people out there whose sole purpose in life is to think up ways of parting people from their hard earned cash with absolutely no regard to their wellbeing. I refer to a new menace that is sweeping the country right now the so called “Pension Liberation” schemes.


What is it?

Pension liberation also known as ‘pension loans’ and ‘pension scams’, is a transfer of a scheme member’s pension savings to an arrangement that will allow them to access their funds before the of age 55.

Pension liberation can result in tax charges and penalties of more than half the value of a member’s pension savings, and those being targeted are usually not being told about these potential tax implications.

In rare cases – such as terminal illness – it is possible to access funds before age 55 from a current pension scheme. For the majority, promises of early cash will be bogus and are likely to result in serious tax consequences.

How are individuals targeted?

An increasing number of companies are targeting savers claiming that they can help them take their pension cash early. Individuals may be targeted through websites, mass texting or through cold calls. Individuals should be very wary about giving out information in response to a text or cold call. They should always make sure that they know who they are dealing with.

What is the catch?

There are some people out there in the current economic climate that maybe desperate for cash. These are the sort of people that will be ruthlessly targeted by bogus companies using marketing techniques akin to those of the PPI claims specialists. Converting a pension into cash might sound very attractive to people who urgently need money. However, if something sounds too good to be true, it invariably is.

  • A member may be poorer in retirement. A member can only use their pension fund once. If they liberate their pension, there will be much less (or no) income from it when they retire.
  • A member may be hit by unexpectedly high fees. As part of the liberation transaction, a member will probably have to pay the organisers a ‘commission’ or ‘arrangement fee’ and these can typically range from 10 – 30%.
  • A member may be misled as to the consequences of the transfer. The member may not be informed or misled as to huge tax consequences of making such a transfer.
  • A member may be hit with significant charges by HM Revenue and Customs (HMRC). If a member has liberated their pension, they need to tell HMRC and will have to pay tax. If they fail to tell HMRC and HMRC contacts the member first, they may be charged penalties and interest in addition to the tax.

The Financial Conduct Authority (FCA) is charged with regulating this area and has taken a dim view regarding the activities of the so called pension liberation companies leading to them stating that; “Regulated firms who engage in so-called pension liberation schemes should be ‘in no doubt’ about how the FCA will deal with them”, Tracey McDermott has warned.

Speaking on Monday 1st July at the FCA’s first financial crime conference in London, the regulator’s director of enforcement and financial crime said; “If someone is offering people under 55 the opportunity of unlocking their pensions, it is almost certainly a scam and we are working with other agencies to raise awareness of this practice.” Ms McDermott added that she wanted to make the UK a ‘hostile’ place for criminals.

Earlier in the day Martin Wheatley FCA chief executive, reinforced his hard-line interventionist strategy, saying he expected the financial services industry to make progress in developing controls against financial risk and crimes such as money laundering. He said; “This is not a matter for debate.”

In terms of pension liberation, he added; “The uplift in cases is worrying. This is a scam that operates beyond legality and morality, with people losing up to 80% of their savings. Financial crime is a live risk to global economic recovery. We are placing great emphasis on personal conduct and personal accountability.”

So in the final analysis please do not be tempted by these people, a reputable adviser will always consider what is best for you going down the ‘pension liberation’ route will only result in a small short term gain coupled with irreversible long term pain as a consequence. Take care everyone and stay safe.

Who to contact

If you are concerned or are approached and offered the services that have been described above, you should contact Action Fraud on 0300 123 2040.





About the Author:

“Eddie Papazian is Principal of EP Wealth Management Ltd with over 20 years experience in the financial services industry and a keen interest in all matters financial. Strong bonds have been forged with clients over this period with many referring family and friends on a regular basis. Eddie is a member of the Chartered Insurance Institute (CII), level 4 qualified to provide advice on; pension, investment, mortgage and protection products. Other interests include reading, tennis, walking and cycling.”

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