A report highlighting that growing numbers of pension savers are being offered the chance to release cash from their pension pot early – only to be hit with hefty hidden charges – was recently published by The Pensions Regulator, the Financial Services Authority and HM Revenue and Customs.
Described by an FSA spokesperson as likely to be a scam – where illegitimate businesses try to con individuals out of their pension money – the authorities have taken the unusual step of issuing a joint warning to demonstrate the seriousness of a problem they say affects thousands every year.
Last year, about £200million was taken out via these so-called ‘pension liberation’ schemes. Some firms offer to release part or all of a worker’s pension pot at a younger age in return for a percentage of the total. Those who are tempted into doing so, possibly to pay off a mortgage or fund their children’s education, are later hit with tax bills that can leave them with just a fraction of their original fund left. Most fraudsters fail to tell their victims that they will incur massive penalties from HMRC for accessing their pension early.
An example was given of a 50-year-old man building up a pension pot worth £20,000, and a firm may offer to give him £16,000 and take £4,000 in commission after ‘liberating’ his savings. However, hidden taxes and unauthorised payment charges to HMRC could lead to a bill of 55 per cent of the original fund. The victim could have to pay another £11,000, so that in reality he receives just £5,000 of his original £20,000 fund.
Pensions Minister Steve Webb said: ‘I am very concerned that people will end up poorer in retirement as a result of these dodgy deals. I hope people listen to these new warnings and think twice before making a decision they could later regret.’
Stick with the best investment philosophies ‘If it looks too good to be true, it normally is’
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