Pension fraud warning over automated transfers

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Pension liberation firms could cash in on lax money transfer security as a result of forthcoming pension reforms, claim industry experts.

Providers and lawyers fear automated pension transfers and letting retirement savers cash in small pot pensions could leave room for fraudsters.

The warning came at a conference on pension transfers called by the Tax Incentivised Savings Association (TISA).

Jamie Jenkins of Standard Life argued the Department of Work and Pensions automated fund transfer proposals could be exploited when retirement savers change jobs and switch their pensions into a new scheme.

“Employers and pension providers will need to guard against mislaid or misrouted funds that could be the result of pension liberation,” he said.

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Rules not tight enough

“Missing money will hit the reputation of the industry hard.”

He told the conference that soon after Chancellor George Osborne announced easier access to pension funds for the over 55s, pension liberation firms were marketing schemes encouraging retirement savers to cash in their funds and to invest the money in property instead.

“These people move really fast and can look at ways to extract this money before providers and the authorities have time to get into gear and close the loophole,” he said.

“Wherever someone can access cash without regulation, we often find someone lurking in the grey areas ready to take advantage of the unwary.”

HM Revenue & Customs (HMRC) have new powers to investigate and deter pension liberation by making schemes pass a pre-screening registration check. Trustees running pensions will also have to clear a ‘fit and proper person’ test.

Detecting fraud

Both are designed to target pension liberation firms from setting up bogus employer pension schemes.

Lawyers feel regulators will have to come up with new ways to control pension fund transfers.

Simon Laight, of law firm Pinsent Masons, said: “It’s much harder to detect fraud or suspected pension liberation when transfers are automated. The person releasing the cash must have some due diligence process in place, and at the moment, existing procedures do not resolve the problems.”

Pension liberation is when a financial adviser helps someone draw down their pension savings against the rules.

Some pension liberation firms have promised retirement savers to access their funds and then stolen the cash, while others neglect to tell savers about the tax consequences of withdrawing their pension early.

HMRC will charge a tax penalty of at least 55% of the value of the liberated pension fund if the money is taken against the rules.

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