Savers are being warned against using schemes that promise to release their retirement cash before they reach 55 in a new campaign launched by government and The Pensions Regulator today.
Pension 'liberation' schemes encourage people to unlock their pensions savings before 55 in the form of either a cash lump sum or a loan. Hundreds of millions of pounds has been released from pensionsin this way, affecting thousands of people.
However, accessing a pension before 55 will normally be classed as an 'unauthorised payment' which can attract tax charges worth up to 70% of the payment value. The saver can also face administration fees from the 'liberation' scheme.
As well as leaving individuals poorer in retirement, The Pensions Regulator noted that the remainder of savers funds were likely to be invested in 'highly dubious and risky, unregulated' investment structures, often based overseas.
To address this, the regulator, the Department for Work and Pensions, Revenue & Customs and other agencies have launched a joint initiative aimed at both savers and pension scheme administrators illustrating the threat to people's pensions if they take up a 'liberation' offer.
This includes a warning that pension administrators and providers will be asked to include in the information they provide to members who request a pension transfer, as well as an 'action pack' for pension professionals, including a checklist and examples of what to look out for.
Steve Webb, minister for pensions, said: 'Money in a pension is there for retirement and should not be released before at least the age of 55. The government is investigating a number of schemes where firms appear to be preying on people when times are tight, and I am working closely with The Pensions Regulator to ensure rules are not being broken.'
The Pensions Regulator's chief executive Bill Galvin highlighted the important role that pension providers had to play in protecting their members from these 'predators'.
'The pensions industry needs to do what it can to protect members from these offers. There can be a huge sting in the tail for those that are tempted by the sales patter,' he said.
'Before considering any transfer requests, we want trustees, providers and administrators to consider whether members' savings are being transferred into a liberation scheme. Providers who don't carry out due diligence before processing a transfer may be placing members at high risk - and also exposing themselves to significant reputational damage.'
The initiative was welcomed by Tom McPhail, head of pensions research at consultancy Hargreaves Lansdown, who said: 'In light of the rapid escalation in pension unlocking activity, it is good news that the government is looking at ways to protect investors.
'Pension unlocking companies pose a real risk to unwary investors, causing additional hardship and misery to people who are very often in a difficult financial position to start with. Hopefully the measures now being introduced will at least cut down on the number of people who fall prey to these schemes.'
Margaret Snowdon, chair of the Pensions Administration Standards Association, added: 'We are supportive of all procedures that help administration professionals and, ultimately, members identify potentially suspicious transactions.'