HMRC Tightens Noose On Pension Liberation Schemes

HM Revenue & Customs (HMRC) is stepping up the war against pension liberation fraudsters by tightening pension scheme rules.

The government is worried some pension liberation or ‘unlocking’ schemes are setting up and receiving a clean bill of health from HMRC’s pension scheme registration checks – but are then switching the way they do business to scam retirement savers.

The government has co-ordinated Operation Scorpion against pension liberation firms for around a year.

Pension liberation is when financial firms help retirement savers access their money earlier than pension rules allow.

However, the position is complicated as pension liberation is not against the law providing retirement savers who take money from their pensions before the age of 55 years old pay a tax penalty starting at 55% of the amount withdrawn.

New rules

Some individual pension liberation schemes fail to tell consumers about the tax charge and charge a fee of up to 30% of the pension transfer value into an unlocking scheme, say insurance companies.

In several cases, retirement savers have lost their money in scams and fraudulent schemes that which their cash offshore into risky property investments.

Now Chancellor George Osborne has introduced flexible access pension freedoms which start in April, pension providers are concerned even more savers will switch their pension funds into liberation schemes which offer high returns.

To combat this, HMRC has redoubled the checks on companies applying to register a pension scheme. The new rules that start in April will give HMRC the power to carry out fit and proper person checks on fund administrators and to withdraw registration if the scheme is a suspected pension liberation scam.

“We are seeing schemes set up under the rules and then altering their business model to something more like a pension liberation scheme,” said an HMRC spokesman. “To try to stop this, reviews of how pensions operate will be ongoing and we will have the power to demand information whenever the scheme rules change.”

Capita Oak warning

Figures from Pension Minister Steve Webb last year indicated around £500 million a year was lost to pension liberation scams by retirement savers.

The Pension Ombudsman is also deliberating on a number of complaints from savers about blocked pension transfers to suspected liberation scheme.

In a recent warning, the ombudsman named Capita Oak as one pension liberation scheme in which an investor has allegedly lost £350,000 after transferring their pension fund to the scheme.

The saver asked for the money to be transferred to another scheme and Capita Oak has so far refused to do so. The ombudsman has suggested the complainant should start legal action against the firm.

Below is a list of some related articles, guides and insights that you may find of interest.

Questions or Comments?

We love to get feedback from our readers. So, after reading this article, if you have any questions or want to make comments, send us a message on this site or our social media?

Don’t forget that you can also request the guides sent directly to your email inbox.