Government campaigns to crack down on pension liberation crooks do not seem to be working, according to figures released by fraud squad detectives.
Pension liberation is when retirement savings from a legitimate pension scheme are switched to one that offers access to the cash before the saver is 55 years old – but the money is often whisked away by criminals.
Although savers can transfer their pensions, taking money before the age of 55 leads to a tax charge by HM Revenue & Customs (HMRC).
Scammers offer free pension reviews, charge high costs for advice and offer unrealistic returns from dubious investments to lure savers to hand over their cash.
In May, according to the City of London Police, these fraudsters escaped with £4.7 million which disappeared during pension transfers – triple the amount lost to pension scams in April.
Average saver loses thousands
The surge in criminal activity coincides with the government launching flexible access pension freedoms and thousands of retirement savers seeking advice on how to draw and reinvest their savings.
Detectives say 3,704 reports of pension liberation fraud were reported in the two years to May 2015, while losses totalled £25 million.
The average retirement saver caught in a pension liberation scam lost £15,000.
These figures do not include tax charges of 55% of the transfer fund value that HMRC has confirmed will be demanded from the retirement savers falling victim to the scammers.
Other figures released by the Pension Ombudsman show the depth of the problem.
Flexible access made problem worse
The service had 177 pension liberation cases last year – a 240% increase on 52 reported in the previous year.
Mick McAteer, who sits on the board of financial regulator the Financial Conduct Authority (FCA) explained pension freedoms had added to the fraud problem.
“The fraudsters are clever and know how to exploit weaknesses in the system,” he said. “Everyone suspected their activity would increase when pension freedoms were introduced and offered easier access to more money.”
The complaints record by the police and Pensions Ombudsman seem to be the tip of the iceberg.
Providers say they regularly step in to block transfers to suspected liberation schemes and the Insolvency Service has closed down several schemes in the public interest.
Providers like Standard Life and Phoenix Group have barred more than 1,500 suspected pension liberation transfers involving retirement savings of more than £40 million.
Meanwhile, The Pension Regulator, the watchdog on pension schemes, has stepped into supervise 35 trustees running suspected scams and frozen assets in 20 cases.
Meanwhile, some pension experts argue the increase in fraud is not linked to new pension freedoms.