Holly Thomas puts you in the picture with the latest pensions news
HM Revenue and Customs (HMRC) has announced that it would make tougher checks to prevent the creation of pension liberation schemes that can deplete peoples' retirement savings beyond repair.
These schemes will no longer be automatically registered to receive funds when an online form is received by HMRC. Instead officials will take the time to review each submission.
Its announcement said: “This will enable HMRC to conduct detailed risk assessment activity before making a decision on whether or not to register a scheme.”
These schemes have claimed more than £400m of people’s hard earned savings.
About 20,000 people have fallen victim to the pensions scam which offers savers quick access to the cash value of their pensions by cold-call workers or firms that send emails or text messages.
Companies typically target older savers who are likely to have substantial retirement funds but have not yet reached 55 – the age after which you can access your pension fund.
They get savers to transfer their savings into a different scheme, often offshore, taking hefty fees – often 20% of the fund –as commission eroding the savings at the outset. Worse still, accessing money in a pension before 55 will also lead to tax penalties of as much as 70% of the value of the payments or investments.
Steve Gay, of the Association of British Insurers, said: “We welcome this important development in the crackdown on pension liberation. The ABI has long called for HMRC to tighten up the process with which a registered pension scheme can be set up.
“ABI members are doing everything they can to prevent people falling victim to these schemes, reporting suspicious transfers to the enforcement agencies and government departments.”
Financial advice expert Tom McPhail said: “These measures will help but there is no magic-bullet solution to this fraud problem. It isn’t always possible to even prove that fraud has been committed and while some of the fraudsters have been pretty inept, they are becoming more sophisticated. We are very concerned that the government’s plans to introduce an automatic transfer system, whilst well-intentioned could make the problem a great deal worse.”
While the schemes are not illegal they can become so if there is evidence of customers being misled about tax implications, for example.
Pension providers are making efforts to stop the schemes spreading by checking pension transfer requests and the Revenue’s measures are expected to help.
But experts are concerned that the ruling means there is still a clear and present danger to savers where trustees face a dilemma where fraud is suspected but the member has a statutory right to transfer.
McPhail said: “Further measures are still needed. The process of vetting the credentials of pension administrators and trustees needs to be strengthened. Industry trade bodies can also look at better informal information sharing processes.”
Savers contacted by a firm promising to release pension funds early are being urged to contact Action Fraud on 0300 123 2040.
Pension savers in need of cash should remember they can take 25% of a pot's value in a tax-free lump sum when they reach 55.
But if you need cash early, look at other ways of raising it, such as equity release.
For those that need debt advice contact a charity that can help you free of charge. Step Change
) is on 0800 138 1111 or National Debtline
) is on 0808 808 4000.