Watch out for these pension scams

Just over a month ago, chancellor George Osborne announced that anyone with a pension would soon be able to cash in the lot on retirement.

He didn’t actually go into much detail at the time, but anyone who read the small print would soon have noticed that these withdrawals would be taxed at the pensioner’s marginal income tax rate.

So, anyone taking out a substantial sum would end up paying the highest current rate – 45% – on a large percentage of their stash. That’s something very few of us would like to do.

Unfortunately, the second part of the message hasn’t got through to everyone. As a result, says John Fox of Liberty SIPP in the Independent on Sunday, “the Budget announcement has given pension fraudsters a new lease of life”.

Pension liberation fraud has been around for a while. You get a call from someone offering to help you get early access to your pension money. You think that sounds nice. You agree to transfer your pension to their scheme. You then pay them a whopping great fee and take your cash.

Shortly after that, HM Revenue & Customs come calling and charge you a 55% penal rate of tax on the entire amount – that being the normal rate charged on unauthorised withdrawals.

The Independent on Sunday points to one individual who took out his £150,000 pension pot in this manner to settle some debts. He paid a £15,000 fee to the scheme providers, then an £82,500 tax bill. He ended up with a mere £52,500 in cash.

Some of the pension liberators act just about within the law. So if you want to be fool enough to break your pension and pay a 55% tax on it, when in only a matter of months you can have 25% tax free and the rest of it at your marginal income tax rate, you will be behaving entirely irrationally – but you won’t be committing a criminal offence.

However, whether they are within the law or not, these ‘liberators’ are all clearly stepping up their activity before the new rules render their fraud irrelevant. It is, says Pensions Insight, a bit of a “while stocks last” situation. So what should you watch out for?

Anyone promising you that they can release your pension before next year; anyone offering you liberation before you hit 55; anyone who texts or cold calls you on anything to do with your pension; or anyone working for a company you can’t easily find on the Financial Conduct Authority (FCA) register.

Finally, watch out for fees. If you can’t figure out exactly what they are, or you can’t get hold of papers with the full details on them, you know that some sort of scam is underway. That holds good not just for pensions-related products, but for every single financial product on the market.

Make sure you take advantage of the pensions revolution

The entire landscape of retirement and saving has changed radically.

To help you make the right decisions for your future, we've produced a FREE Pensions Survival Guide. It'll show you everything you need to know to make the new pension rules work for you.

To get your guide, just enter your email address below. You'll also start receiving our Money Morning newsletter – so whenever the financial landscape starts to shift, you'll be the first to know.


We fund this free email with advertising. Occasionally, we will send you promotional emails, however will never give, sell or rent your email address to any other companies. You can unsubscribe at anytime.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Why you should worry about Greece

...and how to protect your wealth

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

From ADRs to Z scores – all the terms you wish you understood, but were too embarrassed to ask about.

Gervais Williams: if you want real dividend growth, buy small-cap stocks

Merryn Somerset Webb interviews small-cap stock expert Gervais Williams about how penny shares outperform blue chips 'again and again'.


Which investment platform is the right one for you?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from, with varying fees and charges. Find out which is best for you.


3 July 1767: Pitcairn Island is discovered


Pitcairn Island was spotted on this day in 1767 by 15-year old midshipman Robert Pitcairn, serving on HMS Swallow. It was marked wrongly on the ship's chart, and was promptly lost again.


Anatomy of a Grexit: how Greece would go about leaving the euro

Jonathan Loynes and Jennifer McKeown, economists at Capital Economics, look at the key issues and challenges of a Grexit, how it might be best managed, and set out a timetable for change.