Fraser Smart, Managing Director of Buck Consultants, warns pension scheme members to check before acting on the offer of a pension transfer:
“Members of pension schemes are allowed in law to make pension transfers. Transfers occur on the understanding that a transfer payment will be used to provide the member with pension benefits on their retirement.
“In pension liberation cases the money is transferred and then either paid out to the member in cash (less a fee for those involved in the transfer) or in the form of a loan either direct from the new arrangement or indirectly through a third party. It’s not legal, and while you might think that’s it’s an attractive proposition possibly because of your current need for money, the number of people losing out and living to regret the decision to get involved in such schemes is rising.
“Earlier this week the Financial Services Authority won a High Court action against a company running an illegal land bank. Plots of land had been sold across the UK with the promise that investors would get significant profits within two to three years when the land obtained planning permission and was sold. Investors were told property developers were lined up to buy the sites. Some 1,200 investors paid between £5,000 and £25,000 for each individual plot of land. To date no single planning permission has been obtained for any of the sites.
“Individuals taking part in such schemes may be committing criminal offences. Even where they honestly believe what they are doing is legal they will inevitably end up being losers. Where for example cash is paid back the fraudsters traditionally take at least around 20% and HMRC tax charge can be 55% of the whole 100%. A member liberating their pension can end up with practically nothing and no pension. While they are unlikely to be prosecuted, the stress and anxiety caused is not helped by the knowledge they have been fooled.
“A large number of individuals (including the Pensions Minister we hear) have recently been targeted through websites, mass texting or through cold calls. I would advise people to be very wary about giving out information in response to a text or cold call.
“With the Pensions Regulator concerned that some £400m a year is being illegally “liberated” from pension schemes it has teamed up with a number of other agencies namely the Department for Work and Pensions, the Financial Services Authority, the Serious Fraud Office, the Serious Organised Crime Agency and the Home Office to specifically target pensions liberation. Pension liberation will not go away, because of the sums of money involved, but anything which can be done to make life hard work for fraudsters is to be encouraged. Hopefully life can be made so difficult that they decide there are easier ways of making money in an area other than pensions. It’s like installing a burglar alarm, you cannot stop a burglar targeting your house, just make him think there might be easier houses to steal from out there.”
Smart concludes: “There is a lot of money tied up in pensions, and every few years it seems fraudsters return to the area to rerun old schemes or come up with new schemes designed to make people rich quickly. The sad thing is only the fraudsters get rich.”
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