Personal Finance: Scams may be the price of freedom

As William Wallace discovered, freedom comes with a price. Picture: Paramount
As William Wallace discovered, freedom comes with a price. Picture: Paramount
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PENSION rules likely to lead to a surge in fraud aimed at savers, writes Jeff Salway

Pension savers are being targeted in unprecedented numbers by unscrupulous firms exploiting widespread confusion over wide-ranging reforms taking effect in April.

With just weeks until new pensions “freedom” rules kick in, it seems fraudsters are better prepared than a pensions industry scrambling to be ready in time.

The shake-up, unveiled in last year’s Budget and coming into force on 6 April, will allow savers to cash in their whole pension pot as a lump sum from the age of 55. The first 25 per cent can be taken tax-free and the tax on the amount above that will be charged at the saver’s marginal rate, rather than the current 55 per cent.

The government has only recently clarified some of the biggest aspects of the changes, including the delivery of the new free guidance service. But while the pace of change is forcing regulators and firms to play catch up, it has also created fertile conditions for scams.

Those already flourishing include several taking advantage of low awareness among savers over both the current and future pension access rules.

Savers are also being targeted by websites fraudulently purporting to be the official pensions guidance service, while there’s been a sharp increase in reports of cold callers offering “free investment reviews” ahead of the changes.

Pension savers are nearly three times more likely than nine months ago to be contacted about reviewing their pension or releasing some cash from it, according to research by Phoenix Group.

One in ten people aged between 18 and 34 has already taken cash out of their pension through such scams, said the firm, even though the minimum age for accessing pensions is 55 (and will remain so after April).

Parminder Dhothar, intelligence and investigations manager at Phoenix Group, said: “The increase in aggressive targeting by pension scammers in the last nine months is very concerning; people can lose their life savings to these con men.”

They include so-called pensions liberation firms allowing people to unlock their pensions before the age of 55.

Pension liberation scams work by persuading scheme members to transfer their pension to a separate scheme. The individual then gets a loan of half the pension pot, with the remainder going into high-risk, illiquid and usually unregulated investments.

The prospect of hefty investment losses is compounded by fees of up to 30 per cent of the amount transferred and a potential 55 per cent tax hit for an unauthorised payment.

To make matters worse, victims are also very unlikely to have recourse to either the Financial Services Compensation Scheme or the Financial Ombudsman Service.

But the threat of pensions liberation scams could grow after April, Standard Life has warned, as it will become harder for pension firms to prevent transfers into fraudulent investments.

Transfer requests can currently be blocked by providers if they are considered suspicious. After April, however, there will be nothing to stop pension scheme members aged 55 or over from taking out their cash themselves and transferring it to firms touting too-good-to-be-true investments.

Anyone tempted by such opportunities should remember why they have a pension in the first place, said David Gow, a financial planner at Acumen Financial Planning.

“That is, in exchange for part of their current income stream a plan is put in place to provide retirement income at a later age. It isn’t a get rich quick scheme, it isn’t an exciting rollercoaster ride. It is a pot where money is placed to then access at a later date.”

Accessing any pension pot “early” or before retirement should have anyone’s alarm bells ringing, he added.

“Look out for anything that feels out of the ordinary. If you don’t understand anything then take the time and do research so that no mistakes are made,” said Gow.

If you’re cold-called by a company persuading you to unlock cash from your pension, find out first that the firm is authorised. You can do this at or by calling the FCA’s consumer helpline on 0800 111 6768. If it isn’t, steer well clear.

If you’ve already fallen victim to a pensions liberation scam, contact Action Fraud on 0300 123 2040 or at