Scammers adopt to exploit pensions confusion

Victims of fraudsters are unlikely to have recourse to the Financial Services Compensation Scheme or the Financial Ombudsman Service. Picture: Thinkstock
Victims of fraudsters are unlikely to have recourse to the Financial Services Compensation Scheme or the Financial Ombudsman Service. Picture: Thinkstock
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FRAUDSTERS are stepping up their efforts to persuade savers to raid their pension pots as they exploit widespread confusion over new pension rules taking effect next year.

Almost four in ten pension scheme members have been contacted by unscrupulous firms telling them, wrongly, that they can take cash from their funds before the age of 55, new research shows.

More than one in four of those targeted said they had been tempted to take up the offer, according to the survey by Phoenix Group.

Those who do so risk losing huge chunks of their pension savings in high-risk investments, with their misery likely to be compounded by hefty tax charges. Some victims of pension liberation scams have seen their savings wiped out.

As it stands, pension pots cannot be accessed until the age of 55, at which point up to 25 per cent can be taken tax-free and the remainder is taxed at 55 per cent.

But changes coming into force next April will give savers the freedom to take their whole pension in one go from the age of 55, with the amount above the tax-free element being charged at their marginal rate, rather than 55 per cent.

It was hoped that the shake-up, set out in the Budget, would stem the flow of cash going into pension liberation schemes. However, the firms have changed their tactics and are now exploiting public uncertainty over the new rules to convince savers their approach is legitimate.

Pension liberators operate by convincing people to transfer their pension to a separate scheme. The scheme member then gets a loan of half the pension pot, with the remainder going into high-risk, illiquid and generally unregulated investments.

The prospect of investment losses is significant, while the individual may also be hit by fees of up to 30 per cent of the sum transferred and a 
55 per cent tax penalty for an unauthorised payment.

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

Last month the Pensions Regulator revealed that it had shut down five pension liberation schemes that had received pension savings worth more than £134 million from over 1,400 people.

By blocking suspected pension liberation transfer requests, Phoenix has prevented almost 1,000 customers from losing a total of £21m, it said. Edinburgh-based Standard Life said it has blocked 400 suspicious transfers totalling £14m, including 20 in the last month alone.

But attempts to halt suspected liberation schemes have proved difficult, with UK legislation giving scheme members an inalienable right to transfer their pension.

Of the 37 per cent of savers who have received emails or texts from pension liberation firms asking them if they want to release cash from their scheme, 26 per cent said they had been tempted and 15 per cent had responded, according to Phoenix.

Pension liberation firms are often pushing on an open door, the research suggested. It found that 24 per cent of people would consider releasing money from their pension before the age at which they could legally do so, if they had the chance.

Steve Hyndman, head of financial crime prevention for Phoenix Group, a consolidator of closed life schemes, said: “People can lose their life savings through these scams. Many unscrupulous businesses offer customers the opportunity to unlock their pension in exchange for cash before they reach 55, often without making them aware of the fees they are charging for this service.”

Efforts to raise awareness of the scams must be ramped up ahead of the new rules coming into force in the spring, he added.

“Although the pension changes announced for April 2015 give greater flexibility to pension policyholders, they also present some great opportunities for fraudsters,” said Hyndman.

“The fact that policyholders are confused about what the changes mean for them, and when they come into force, increases the risk that they will be exploited by fraudsters. It is vital that the industry continues to raise awareness of this issue and ensures consumers are adequately protected.”

The tactics employed by pension fraudsters are likely to evolve after April, experts believe, focusing increasingly on people who can take their cash legally but persuading them to invest it in high-risk, unregulated or even non-existent investment schemes.

That is already happening, judging by a warning from the Financial Conduct Authority. It said scheme members were being approached by one firm to transfer money and use it to buy shares in Emmit Plc. As an incentive to transfer money, they were offered “cash back” on investments in the firm, which is listed on the alternative investment market.

It said the scheme offering the opportunity was targeting inexperienced investors, many of whom then invest their entire pension in Emmit and put themselves at risk of huge losses. Emmit does not appear to be complicit in the arrangement, according to the regulator, which added that at least 60 investors had invested up to £4m in the firm through the scheme.

If you’re approached by a company telling you to consider taking cash from your pension before the age of 55, find out first if the firm is authorised. You can do this at or by calling the FCA’s consumer helpline on 0800 111 6768.

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