Pension savers should beware of schemes that offer ‘pension liberation’, which is where someone who needs money can access their pension before the age of 55, which is highly irregular.
Often these schemes can result in an ‘unauthorised payment’ which attracts significant penalties that could wipe out most of the money in the pensions pot, thereby leaving very little for the individual to live off when they retire.
Unfortunately, given the tough economic climate, more and more people are looking at pension liberation as a means of getting money in the here and now and the Pensions Regulator estimates that around £400m has been transferred from funds in this way.
Rogue firms are actually targeting pension savers and bombarding them with texts, cold calls and adverts in a bid to get them to release some of their savings and then transfer the money into unregulated investments, many of which turn out to be scams.
Like all clever scams, many of the arrangements appear to operate within the letter of the law, while many are downright illegal and almost none inform the people targeted of the potential tax consequences.
The rogue pension release schemes, which are often based abroad, also usually carry punitive rates of commission that are hidden until it is too late to back out and the promised investments yield no dividends.
Pension savers should display caution if they are approached out of the blue by text or cold called and to keep an eye out for companies offering a ‘loan’, a ‘savings advance’ or ‘cashback’ from a pension, as well as anything to do with ‘loopholes’ or overseas investments.
If you’re looking to save for your pension but want to ensure you have funds for the here and now, come and speak to our team of financial advisers.
Steve Horton is a Chartered Accountant and a Chartered Financial Planner who specialises in helping clients to manage their pensions and investments