The Pensions Regulator (TPR) has issued new warnings on “pensions liberation” fraud, as such crimes are on the increase.  In 2012, £400m was transferred through such scams and TPR is currently investigating 21 cases.

Pension liberation fraud is the use of “pensions loans” or cash incentives along with misleading information to entice savers to transfer money from one pension scheme to another.  Fraudsters are aware that money is tight, so it’s not surprising pensions savers fall victim to the promise to “unlock the value of a pension” in return for a cash advance.

What to look out for

TPR has advised members of pension schemes to be alert to the following warning signs that may indicate a fraudulent pension scheme:

• Being approached out of the blue over the phone or via text message.
• Pushy advisers or “introducers” who pressure the member to transfer their pension as soon as possible, sometimes offering cash incentives if the transfer is done quickly.
• Companies offering a “pension loan”, “savings advance” or “cash back”.
• A pension saver being contacted about a “legal loophole” they can exploit to their benefit.

According to The FT, once a pension saver has been contacted, they are often “persuaded to put their funds in high-risk investments and left exposed to tax penalties”.

Tax consequences

Pension liberation schemes often give misleading information about the tax consequences of the options they offer. A pension saver is usually only allowed to access pension funds before the age of 55 in rare circumstances. If the saver gains access to their pension funds other than by receiving a pension at retirement, this may be considered an “unauthorised payment” for tax purposes and will be taxed at a minimum rate of 40%.  The member might also incur further charges and penalties that could reduce the value of their pension savings by more than 50%.

Preventative steps

TPR advises savers to take the following preventative measures if they think they are being targeted by a pensions liberation scheme.

1. Don’t give out financial or personal information, such as name, date of birth or address, to a cold-caller.
2. Check the adviser is registered with the Financial Services Authority.
3. Ask for a statement showing how the pension will be paid at retirement and who will look after the money.
4. Take advice from a registered adviser who is not connected with the scheme.
5. Don’t rush into a transfer.

Visit the Pensions Advisory Service for further advice.