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Pension liberation schemes snare £400m

by Daniel Grote on Feb 11, 2013 at 07:29

Pension liberation schemes snare £400m

Savers have handed around £400 million of their pension assets to illegal liberation schemes since 2008, according to The Pensions Regulator (TPR).

Speaking on BBC Radio 4’s Money Box programme, TPR chief executive Bill Galvin (pictured) said challenging economic conditions were tempting those under 55 to access their pensions using the schemes.

‘We have shut down over the last 18 months a number of vehicles which have been used for “pension liberation” schemes, we have installed independent trustees,’ he said.

He added that TPR would support legitimate schemes which had suspicions assets were being transferred away from them to liberation schemes.

‘There are circumstances in which we will support them in a decision to delay or not to transfer monies where they have certain suspicions,’ he said.

New Model Adviser® revealed last week TPR was planning a campaign against liberation schemes, dubbed ‘Predators stalk your pension’.

11 comments so far. Why not have your say?

Zoomer

Feb 11, 2013 at 09:03

Its positive that the powers that be are taking action; however, its just a shame it has taken them so long to get their finger out and do something!

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Paul Barnard

Feb 11, 2013 at 09:35

So just what happens to the people who have been duped? Will HMRC present them with a bill for an unauthorised payment charge @ 55%?

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Zoomer

Feb 11, 2013 at 09:38

Paul Barnard

By rights yes they should.

These clients can then appeal these charges; however, success is not guaranteed.

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TheFuture

Feb 11, 2013 at 09:39

Perhaps somebody will think of looking at the individual needs of those threatened with job loss or home reposession with monies languishing in high charged low performing funds and wonder whether early access may be reasonable in certain situations

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Zoomer

Feb 11, 2013 at 09:54

TheFuture

They may well do but no matter what the charges or pension scheme performance there will still be those who want to flount the rules to get early access to pension funds.

I dont think charges and performance can be blamed for this issue!

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Richard Hardy

Feb 11, 2013 at 10:05

I agree pensions are for the long term however should the Government and Regulators not be looking at the reasons as to why people are approaching these 'Liberation' companies.

Pensions are far too inflexible with very limited investment offerings and poor annuity prospects at retirement. Many of those consumers who started their pension 20 years ago now need twice as much fund to produce the same level of income as anticipated at outset.

Pensions are no longer attractive as an investment to many consumers and they will remain so until they are brought up to date and made more flexible. In the current economic climate and their experience over the last 20 years many clients ask who would lock up their money for 30-40 years not knowing what taxed income you'll get when you retire. For many consumers the pension is seen as the terd of investments and no matter how much you polish a terd it is still a terd.

The Government and Regulators could easily get rid of the cowboys by allowing the policyholder access to their funds less the percentage tax relief they received on their contributions.

At the end of the day they are being denied access to their own money.

Hard times arrive at everyones doorstep at some point in life. What is the better option, losing your house now but having a more affluent retirement in 15 years time or keeping a roof over your head and living less affluently in retirement?

Or would the Government prefer the consumer to obtain the funds from a payday lender charging 4000% per annum interest?

Rather than knee jerk reactions from the Government and Regulator it's about time they sat down and made some common sense decisions to make pensions more attractive.

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Peter J.

Feb 11, 2013 at 10:10

I have just been looking at an online newspaper in the South of Spain, there are two adverts that openly offer access to UK pension funds before the age of 55.

Given the state of the economy over there, it would seem to me that there might be a lot of takers for these offers.

If these people are then hit with up to 70% tax on the money that they took out, as the BBC Moneybox interview suggested , this could ruin them.

Surely, the promoters of these schemes should be the target and not the victims.

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Usually found sitting on the fence

Feb 11, 2013 at 10:42

@ Richard Hardy - I think you probably touch on the biggest question and that is why? It can be used in so many ways, "I am struggling, going to lose everything, why can I not access my money?" and "Free money, why not?"... There are those who are desparate and then there are those that are greedy. Unfortunately all end up being dictated to by the greedy.

What is the solution? I think that the Govt could quite easily organise (in conjunction with) a buy back scheme. The pensioner may release some of their assets, say 40% of the value of their pot, and the Govt places a 10% charge on that. Effectively 50% of the funds are utilised. 40% to the client and the other 10% remains in the fund. The individual may then, when things improve, pay back the money and the charge is waived (they have say 10 years). The Govt could set the admin charge for this at £50. To keep it simple the amounts used remain static, so if you take £1000, you pay back £1000. Obviously HMRC or other Govt body would need to issue a Pension Funds Access Order/Certificate, to prevent affluent and solvent using it as a cheap loan.

@ Peter J - Totally agree, those offering, promoting and encouraging this need to be dealt with accordingly and if they have done nothing wrong, change the rules and make it wrong. They are little more than parasites preying on the vulnerable and/or the stupid.

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Sascha K

Feb 11, 2013 at 12:08

@Richard Hardy:

"The Government and Regulators could easily get rid of the cowboys by allowing the policyholder access to their funds less the percentage tax relief they received on their contributions."

Isn't that basically income tax?

"At the end of the day they are being denied access to their own money."

No, they aren't. They gave the money to a trust. Once you give money to a trust it is no longer yours - this doesn't change just because the purpose of the trust happens to be to provide you with pension income.

Apologies for the nit-picking, but I have a wider point, specifically in response to Fence - the point of pensions is essentially that they have a long list of rules which are basically there to ensure that you can't take all the money out, in order that you eventually get an income in retirement. So introducing an even longer list of rules to allow you to take some of the money out is - well, missing the point really.

Missing the point in particular are arguments along the lines of 'what if you lose your job and can't pay your mortgage'. With the exception of a few lucky members of the gold-plated brigade, everyone loses their job at some point. If you don't have enough spare savings to survive a period of unemployment, you shouldn't be paying into a pension.

As it happens, I agree with much of what has been said about pensions being poor value, but none of it is really relevant to pension unlocking scams. This schemes exist because of greed and ignorance, not because annuity rates aren't very good.

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TheFuture

Feb 11, 2013 at 12:20

Oh Dear Sascha, does this mean that the offering will never evolve to what the market wants?

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Usually found sitting on the fence

Feb 11, 2013 at 12:43

@ Sashka K - Because pensions are governed by a long set of rules, it's best not to add any more? Because something has been incredibly convoluted by Govt upon Govt, let's not make any changes as the providers are getting bogged down in the detail. Where do you sit on flexible drawdown?

Missing the point - You would prefer an individual and their family lose everything, than free up some of the monies put aside to make life better in retirement. There are many ways in which someone can fall on financial hard times, not just losing a job. Sometimes what would be considered adequate savings are just not enough. And using your logic, "enough spare savings", this would mean the vast majority of the nation would not be paying into a pension and are the Govt not trying to forcibly encourage pension savings? Perhaps you would like to enlighten me as to how much you think someone should have as spare savings? (as a percentage of their annual salary will be fine).

This approach actually means that more and more people are going to be avoiding pensions, as they are going to need the flexibility when they need it and that may not be conveniently when they are old...

Finally, my personal view is that a pension fund should be used in retirement, however there needs to be some concept of flexibility. Money should flow into pensions, but when certain hardship criteria can be proven, maybe a little could flow back out. It could be controlled by HMRC, avoiding abuse, and protecting the pension provider at the same time. If you think about it from a pensions perspective, it's a win win situation.

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