Pension Liberation And Unlocking FAQ

Financial advisors are cold-calling retirement savers to try to persuade them to access their pensions early through illegal pension liberation and unlocking scams.

Now the government is fighting back with a high-profile campaign to warn pension holders about the risks of signing their savings over to unscrupulous hit-and-run fraudsters who will grab up to half the cash.

If you are concerned someone is after your pension, here are the answers to some frequently asked questions about pension unlocking.

What is the anti-fraud campaign about?

Called ‘Predators stalk your pension’, the campaign comes after the pensions’ regulator estimated that just under £25 million of pension pots were illegally released in 2010.

Within a year, that figure had rocketed to £200 million and last year the government said that it rose by several hundred million pounds more.

How do they find people to unlock their pensions?

Potential customers are contacted by cold-calling over the phone or by sending spam text messages.

Other firms are targeting people listed on bankruptcy lists, while others are approaching potential clients under the guise of being financial advisers.

Under the current law, people can access their pension pot over 55 years of age and claim up to 25% tax free. The issue is that these firms are targeting those aged in their forties and early fifties who have financial problems.

So this is illegal?

The High Court has ruled that unlocking a pension before the age of 55 is illegal except in some special circumstances, like disability or terminal illness, but firms are increasingly targeting retirement savers under 55.

How do pension liberation companies get away with it?

A company will offer ‘pension loans’ or cash incentives with misleading information to entice people to hand over their pension pots in what is a growing scam known as pension liberation fraud.

The same companies rarely disclose the penalties for taking an unauthorised payment from a pension pot. The result is the fees can add up to half the value of a pension, while the other half can go in fines and penalties when the taxman catches up.

What are the penalties?

The penalties for gaining access to a pension pot before the age of 55 are steep.  HMRC will impose a fine of at least 55% of the transfer fund value for making an unauthorised payment from a pension.

What do you do if a scammer contacts you?

Do not sign any contracts or hand over any cash, however good the offer sounds. Contact an independent financial advisor to go through the offer – in almost every case the response will be not to go ahead.

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