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‘Pension loans’ or cash incentives are being used alongside misleading information to entice savers as the number of pension scams increases. This activity is known as ‘pension liberation fraud’ and it’s on the
increase in the UK.
In rare cases – such as terminal illness – it is possible to access funds before age 55 from your current pension scheme. But for the majority, promises of early cash will be bogus and are likely to result in serious tax
consequences. Tax charges of over half the value of your pension could fall on you for taking an ‘unauthorised payment’ from your pension fund in this way. In addition, fees deducted from your pension for the transfer are unlikely to be recovered. Such fees tend to be very high and could be 20% or more of your pension savings in some cases.
Most of the time, people targeted by pension fraudsters or scammers are not informed of the potential tax consequences involved.
Some examples
A diverse range of tactics is employed to convince members to go along with plans to ‘liberate’ their pension. In some cases these arrangements appear to operate within the law, but can still attract large tax charges; and some are outright illegal. To help identify these arrangements, we’ve outlined how you might be approached and what you might be asked to do. These are fictional examples, people and companies, but the actions described are based on real life situations.
What happened next?
Meera was contacted out of the blue. Companies are increasingly targeting people this way, and there is evidence that they are succeeding in duping members of the public into transferring their funds to rogue
pension arrangements. One technique that pension fraudsters use is to send a large portion of your pension transfer overseas. This makes your money harder to trace and retrieve when the scam is closed down and allows those running the scheme to spend your money in jurisdictions which normally have less regulation than the UK.
Find out more information from the Pensions Advisory Service and read more examples ( PDF DOWNLOAD )
increase in the UK.
In rare cases – such as terminal illness – it is possible to access funds before age 55 from your current pension scheme. But for the majority, promises of early cash will be bogus and are likely to result in serious tax
consequences. Tax charges of over half the value of your pension could fall on you for taking an ‘unauthorised payment’ from your pension fund in this way. In addition, fees deducted from your pension for the transfer are unlikely to be recovered. Such fees tend to be very high and could be 20% or more of your pension savings in some cases.
Most of the time, people targeted by pension fraudsters or scammers are not informed of the potential tax consequences involved.
Some examples
A diverse range of tactics is employed to convince members to go along with plans to ‘liberate’ their pension. In some cases these arrangements appear to operate within the law, but can still attract large tax charges; and some are outright illegal. To help identify these arrangements, we’ve outlined how you might be approached and what you might be asked to do. These are fictional examples, people and companies, but the actions described are based on real life situations.
Meera is 48 years old and has been in her company pension scheme for 13 years when she receives the following text message from an unknown number:
‘Unlock the value of your frozen pension and get £5,000 cash back within days. Reply YES for info or STOP to opt out.’
Meera is interested so replies to the message to find out more. Soon she receives a call from Tony, who works for a company called Direct Pension Release Ltd. Tony tells Meera that Direct Pension Release Ltd can help unlock her pension early via an overseas investment fund which would be managed by trustees at Direct Pension Release Ltd. This would involve Meera transferring her pension out of her company scheme and into one suggested by Direct Pension Release Ltd.
Meera agrees to transfer her pension. She plans to take a lump sum on top of the £5,000 cash back, with the Direct Pension Release Ltd trustees investing the rest overseas. As well as the cash back, Meera is also offered a £1,000 incentive for transferring quickly. She is also told this payment will be made tax free. She agrees to pay a 10% administration fee, to be taken from the money she is transferring.
On the day Meera receives the transfer papers, Tony calls to encourage her to return the papers by special delivery so the transfer can happen quickly. Tony also suggests that Meera should chase her current pension scheme trustees to pay the transfer.
Meera signs the transfer papers that were sent to her and returns them to Direct Pension Release Ltd, but because duplicate versions were not provided she has to photocopy them.
‘Unlock the value of your frozen pension and get £5,000 cash back within days. Reply YES for info or STOP to opt out.’
Meera is interested so replies to the message to find out more. Soon she receives a call from Tony, who works for a company called Direct Pension Release Ltd. Tony tells Meera that Direct Pension Release Ltd can help unlock her pension early via an overseas investment fund which would be managed by trustees at Direct Pension Release Ltd. This would involve Meera transferring her pension out of her company scheme and into one suggested by Direct Pension Release Ltd.
Meera agrees to transfer her pension. She plans to take a lump sum on top of the £5,000 cash back, with the Direct Pension Release Ltd trustees investing the rest overseas. As well as the cash back, Meera is also offered a £1,000 incentive for transferring quickly. She is also told this payment will be made tax free. She agrees to pay a 10% administration fee, to be taken from the money she is transferring.
On the day Meera receives the transfer papers, Tony calls to encourage her to return the papers by special delivery so the transfer can happen quickly. Tony also suggests that Meera should chase her current pension scheme trustees to pay the transfer.
Meera signs the transfer papers that were sent to her and returns them to Direct Pension Release Ltd, but because duplicate versions were not provided she has to photocopy them.
Five weeks after she transferred and before Meera had received her lump sum, the Serious Fraud Office, HM Revenue & Customs and The Pensions Regulator started investigating Direct Pension Release Ltd.
As a result of these investigations, transfers in and out of the scheme where Meera’s pension was held were suspended and the scheme accounts were frozen.
Eventually, Meera’s pension pot was made available to her and she transferred it to a personal pension scheme. The money available for Meera to transfer to that personal pension scheme was significantly less than the amount she had originally transferred to the scheme suggested by Direct Pension Release Ltd.
The 10% administration fee which Direct Pension Release Ltd took still hasn’t been traced and the £6,000 cheque that Meera eventually received for the cash back and quick transfer incentive bounced. The transfer from her previous pension scheme was found to be an ‘unauthorised payment’. Meera had to pay more than half of her original pension value in tax charges.
As a result of these investigations, transfers in and out of the scheme where Meera’s pension was held were suspended and the scheme accounts were frozen.
Eventually, Meera’s pension pot was made available to her and she transferred it to a personal pension scheme. The money available for Meera to transfer to that personal pension scheme was significantly less than the amount she had originally transferred to the scheme suggested by Direct Pension Release Ltd.
The 10% administration fee which Direct Pension Release Ltd took still hasn’t been traced and the £6,000 cheque that Meera eventually received for the cash back and quick transfer incentive bounced. The transfer from her previous pension scheme was found to be an ‘unauthorised payment’. Meera had to pay more than half of her original pension value in tax charges.
Meera was contacted out of the blue. Companies are increasingly targeting people this way, and there is evidence that they are succeeding in duping members of the public into transferring their funds to rogue
pension arrangements. One technique that pension fraudsters use is to send a large portion of your pension transfer overseas. This makes your money harder to trace and retrieve when the scam is closed down and allows those running the scheme to spend your money in jurisdictions which normally have less regulation than the UK.
Find out more information from the Pensions Advisory Service and read more examples ( PDF DOWNLOAD )
