Court Tops Up Powers For Fighting Pension Liberation

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The bizarre High Court case to define pension liberation fraud which saw The Pensions Regulator both putting the case for and against the practice has ended with the judge handing down a ruling.

Pension liberation is a scam that lets savers below the minimum retirement age of 55 years old take cash from their pension.

Pension rules generally only allow this under special circumstances – like the saver suffering from a terminal illness that means they are unlikely to be able to enjoy their pension.

However, unscrupulous financial advisers have tried to bend the rules to offer other savers access to their cash.

The regulator claimed pension liberation or unlocking was fraud, that savers were misled about the rules and were not told about the fees and tax penalties involved.

Landmark judgment

Pension liberation involves switching a pension away from a reputable provider to another scheme, where fees are deducted by the trustees and advisers. Often the cash is sent overseas into worthless speculative property investments.

Now, the High Court has agreed that the pension liberation schemes are occupational pension schemes.

In isolation, the ruling seems unimportant, but what the judge has laid down is a yardstick for the regulator.

As an occupational pension scheme, the regulator can appoint trustees to take over the running of the fund, freeze bank accounts and make orders to repatriate payments.

In tandem with HM Revenue and Customs, which has tightened up the rules for opening new pension schemes and for confirming transfers to existing schemes, the regulators and tax authorities have the power to stop pension liberation schemes receiving money.

Retirement scam

In his ruling, Mr Justice Morgan defined the schemes against the terms of the Pension Scheme Act 1993.

He said: “I have concluded that the purpose of the scheme, as expressed in the language of the scheme, satisfies the purpose test in the definition of occupational pension scheme.”

The Pensions Regulator was forced to play devil’s advocate against itself in court as earlier rulings had labelled specific schemes as fraud, but not pension liberation per se.

Now, the regulatory landscape has changed and any pension liberation scheme will be treated as an occupational pension – allowing the regulator and HMRC to choke the scheme’s ability to scam retirement savers.

Pension savers could see their funds decimated by pension liberation, with much of the cash disappearing to fraudsters and the rest going in tax penalties to HMRC.