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Warning against early release pension offers

Ref: PN12-05
Saturday 25 February 2012

Consumers have been warned to steer clear of pension offers that claim to be able to provide loans or release tax-free cash from people’s pension pots before they reach age 55.

The Pensions Regulator, Financial Services Authority (FSA) and HM Revenue and Customs (HMRC) have recently detected an increase in these schemes, with known transferred funds amounting to nearly £200m by the end of 2011. The organisations are urging individuals not to be taken in by website promotions, cold-calls or adverts encouraging them to transfer their existing occupational or private pension to a new arrangement in order to access a cash payment or loan.

These schemes usually work by transferring some of the member’s pension fund into highly risky or opaque investment structures, frequently based overseas - with no guarantee that members will get their money back if something goes wrong.

By accessing pension savings earlier than the law permits, individuals are likely to be poorer in retirement – and can face substantial tax charges.

The Pensions Regulator has published details of its investigations in two cases.

The Pensions Regulator has published the initial determination notice and the compulsory review, setting out how it appointed an independent trustee with exclusive powers to six schemes operated by Ark Business Consulting. As a result of the appointment, the appointed trustee took control of the schemes' bank accounts. Central to the Ark business model was a ‘Pension Reciprocation Plan’ structure which used loans between pension schemes as a means of unlocking pension funds before retirement. In December, the High Court ruled that these arrangements were legally void.

In a second case, The Pensions Regulator appointed an independent trustee to the Hollywell Enterprises Pension Scheme after concerns that a proposed £2m transfer to a bank account in Germany was an attempt to move high value pension funds overseas to Belize to be used as a vehicle for pension liberation, placing members’ benefits at high risk. The initial determination notice and compulsory review are also published.

View the determination notices

Victoria Holmes, case team leader at The Pensions Regulator said:

“These offers are typically advertised on websites or small adverts in newspapers. If the offer sounds too good to be true, it probably is. It may simply be a scam designed to get hold of your money. Transferring your pension to one of these questionable investment models could result in you losing your entire pension.

“Immediate financial gain may sound tempting, particularly in the current economic climate. But don’t be taken in – you are likely to face substantial tax charges and will be poorer in retirement.”

Jonathan Phelan, head of the FSA's unauthorised business department, said:

“Like The Pensions Regulator and HM Revenue and Customs, the FSA has seen an increase in firms offering "early pension release schemes" often referring to them as unlocking, liberating or releasing funds tax free. There is a high chance that these are scams run by illegitimate firms trying to con individuals out of their pension money.

"All firms that sell personal pension plans, advise on them and arrange for the transfer of pension plans should be authorised by the FSA. You should check whether the firm that’s giving you advice or is selling or transferring a pension plan is authorised before engaging with them. If you deal with unauthorised firms you are not covered by the Financial Services Compensation Scheme or the Financial Ombudsman scheme and you could face tax charges and lose your pension pot if things go wrong."

Graeme Hood, head of HMRC’s pension schemes office, said:

“Tax relief given on pension saving is intended to encourage individuals to save for the long-term to provide them with an income in retirement. That is why UK tax rules set a minimum age from which benefits from pension savings can normally be accessed.

“HMRC is committed to ensuring that the rules around the age from which benefits can be taken from pension funds are protected and that savings built up with the benefit of generous tax reliefs are not misused. We will take firm action to detect and pursue those who deliberately break the rules by offering schemes to access pension savings other than as intended by Parliament.”

What is the catch?

The prospect of immediate cash may seem appealing but it will leave you poorer in retirement. There are high risks involved, including:

  • The possibility that you will lose your entire pension if the arrangement is not bona fide.
  • Paying high fees to the firms making the arrangements for you. These fees may be deducted from your pension fund when it is transferred meaning that you could receive only 70% to 80% of your pension once the firm has taken its fees.
  • Significant tax charges. If you take money out of your occupational or personal pension plan early, this will normally be an unauthorised payment. Unauthorised payments will be subject to tax charges – these tax charges can be up to 55% of the value of the payment for a scheme member and at least 15% of the value of the payment for the scheme administrator. If you fail to tell HRMC, you may be charged penalties.

What to do if in doubt

  • Check the FSA’s register which lists all authorised financial services firms: [link archived 10 October 2014] 
  • If you are concerned that any of the above may apply to you or you are approached and offered the services we have described, please contact either the FSA via their Consumer Helpline on 0845 606 1234, HMRC’s Pensions Anti Fraud Unit on 0115 974 2147 or The Pensions Regulator on 0345 600 0707. Please provide as much information as you can about the services and the firms involved, including their contact details and ‘firm reference number’ (FRN) if they claim to be authorised by the FSA.
  • The Pensions Regulator’s fact sheet on pension liberation:
  • The FSA’s warning on early release pension schemes: [link archived 10 October 2014]



Editor's notes

  1. The Pensions Regulator is the regulator of work-based pension schemes in the UK. We have objectives to: protect members’ benefits; reduce the risk of calls on the Pension Protection Fund (PPF); and promote good administration and improve understanding of work-based pension schemes. From 2012 we will have the additional objective of maximising employers’ compliance with their duty to automatically enrol staff into a qualifying pension scheme.
  2. The FSA can take civil and criminal action against firms in the UK who are not authorised by the FSA but who appear to carry out activities or promotions which require FSA authorisation.
  3. The Pensions Regulator expects trustees of occupational schemes to comply with legislation and act in accordance with their fiduciary duties and in members’ best interests. If trustees fail to adhere to these requirements, the regulator’s powers to ensure that members are protected include the:
    • suspension and/or prohibition of trustees
    • appointment of new trustees to schemes
    • issuing of financial penalties

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