Hundreds of retirement savers who joined an illegal pension liberation scheme face paying out thousands of pounds in tax penalties.
Five pension liberation or unlocking schemes which handled £134 million from 1,400 retirement savers have been closed by The Pensions Regulator (TPR) after 18 months of legal wrangling.
Now, HM Revenue & Customs (HMRC) is considering action against the pension savers for making unauthorised pension withdrawals.
This could involve imposing tax penalties starting at 55% of the amount of cash transferred into the schemes.
The pension investors have already paid an 11% fee – a total of £14.7 million – to join the ill-fated schemes and now face losing at least two-thirds of their pension funds if HMRC demands tax penalties.
The schemes took the transfers in just 22 months between August 2011 and June 2013.
The regulator explained so many cases were involved as the pension liberation scheme was marketed by a network of sales people who enticed retirement savers through cold calling by telephone, mobile and email.
The schemes involved are
- A Admin
- Warwick Pensions Administration
- Lincoln Pensions Administration
- Baxendale Walker LLP
- Paul Baxendale-Walker, a former lawyer who owned film companies and lads’ mag Loaded
TPR explained the schemes were set up with the intention of providing cash payment to savers rather than retirement benefits.
“This is not the way pensions are designed to run,” said a TPR spokesman. “The premise of these schemes was to exploit a so-called loophole that allowed funds in the pension to be borrowed by the investor through a company under their control.
“Effectively they became their own employer and could spend the pension money how they liked.”
In May, the High Court ruled pension rules had no such loophole, which rendered the schemes illegal. Baxendale-Walker had an appeal rejected in July.
“This case shows that the regulators and other statutory bodies will take action to stop pension liberation scams,” said the TPR spokesman. “These schemes undermine people’s faith in the pension model and do not work.
“Our action also leaves the way open for anyone who has transferred money into one of these schemes to consult with a lawyer over action to mitigate their losses.”
The regulator, HMRC and the Serious Fraud Office have set up a task force to tackle pension liberation fraud.
The Financial Ombudsman is also expected to deliver verdicts on more than 80 pension unlocking complaints before Christmas.