Pension Liberation Warning by HMRC

1 August 2015

Pension Liberation Warning by HMRC Following a recent report by the Citizens Advice Bureau that revealed nearly half of all staff members had dealt with members of the public who have been targeted by pension scams, namely pensions liberation, HMRC (Her Majesty's Revenue and Customs) has warned that the problem may be worse than many people think.

Scammers are using increasingly ‘sophisticated pension liberation models' to trick people into transferring their pension pot into investments that offer little or even no returns.

Pensions liberation scams fall into two distinct categories targeting two different types of savers:

  • Over 55s - Because under new government pension freedoms, anyone over the age of 55 has full access to their pension pot, scammers target the over 55s to get their hands on their lump sum payment by promising unrealistic returns from often non-existent investment schemes.
  • Under 55s - As those who are under the age of 55 cannot access their pension pot until 55, pensions liberation companies offer a legal, albeit unethical way of accessing their pension pot. People may get access to their pot, but the vast majority of it will be eaten up by sky high charges from the liberation company and HMRC taxes as accessing your pension early is classed as an unauthorised payment.

The HMRC wants "members to make the right decisions about investments and to understand the consequences of not seeking proper advice".

There has been a gradual increase in pension liberation scams over the past two years, which has accelerated sharply since the introduction of the government's new pension freedoms. No one can be sure of the true figure of the problem, but £700m is entirely feasible when taking into account the existence of 'secondary liberation' schemes, where people transfer to an overseas pension scheme which may down the line become liberation. It's almost impossible to know the true scale of such schemes.

Whilst pension funds are taking a tough stance on such scams, pensions liberation is a problem that looks set to grow. The introduction of auto enrolment which is no doubt a huge positive for people looking to save for retirement means that the vast increase in people with pensions will give scammers more and more targets for their dubious schemes.

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