What is a pension liberation scam?

Dan Moore / 29 January 2015

Pension liberation scams involve unscrupulous individuals and firms offering a way to release large amounts of money from your pension before you reach the age of 55.

Unfortunately, the outcome is often that victims lose most, if not all, of their hard-earned savings, and potentially face a massive tax bill to boot.

Pension scams could cost you everything

Given the numerous changes to the pension rules, you could be forgiven for falling for a scam. Typically, these are offered to people who would lose out in a big way if they agreed to withdraw money from their pension before they reached 55.

Potential victims are told their accumulated pension fund can be transferred into investments or converted into cash, which could be tempting if you’re short of cash.

The problem is these firms charge a huge fee, typically equivalent to 20% to 30% of your pension’s value. The rest is likely to be put into unsuitably high-risk investments or placed in a cash account run by the fraudster, who absconds with the whole lot.

As if that’s not bad enough, you could also find yourself facing a hefty tax bill that’s equal to 55% of the money released from your pension, leaving you with nothing but debt.

Why this matters now

In April, a raft of reforms will come into force that allow money-purchase pension savers full access to their pension, without the need to buy an annuity. Essentially, this means you will be able to withdraw what you like from your accrued fund – even the whole lot, subject to income tax at marginal rates on three-quarters of the money.

However, you must be aged 55 or over to access your pension. You can only do so earlier in exceptional circumstances, such as if you have a terminal illness. In this situation, you should seek advice from an accredited financial adviser.

It’s important to remember this, because fraudsters will take advantage of any confusion or misunderstanding to get what they want. This includes persuading unwitting younger pension savers to sign up to what they may call ‘early pension release’, ‘liberation’ or ‘cash back’, among other terms.

How to spot a pension scam

Pension fraud is big business. Action Fraud estimates it costs UK pension holders £600 million a year. For this reason, criminals have developed a number of techniques to con you into doing business with them. The good news is there are some ways to spot pension liberation fraud, which include the following.

If you are contacted out of the blue via phone, text, email or by someone turning up at your home, beware. If you respond in any way, you are likely to face a hard sell, which could be sweetened with offers to give you some cash upfront or to undertake a free pension review.

The firm may put you under pressure to make a quick decision by claiming it’s a time-limited deal. Their aim here is to prevent you from doing research or changing your mind.

Dubious firms will be persuasive, playing down the risks and skirting over the tax implications. If you press them on investment risks, fees or tax issues they could try to blind you with technicalities, talk of loopholes, as well as foreign or new investment opportunities. Basically, they will say anything to get you on board.  

Play it safe, before it’s too late

If you are misadvised, or a victim of fraud, and enter into one of these agreements it’s unlikely you’ll get any redress. You’re unlikely to get your money back, leaving you without a way to fund your retirement, and potentially facing a crippling tax bill.

What if the deal on offer sounds worthwhile?

If you are tempted by someone who claims to have a product that will allow you to convert your pension into cash or an investment, it’s best to do some research. First verify whether the provider is legitimate by checking whether they are on the Financial Conduct Authority’s register. Don’t take their word for it, even if they produce literature that seems to support their claim.

Even if they are on the register, you should take further steps before entering into an agreement. Ask for a statement showing what will happen to your pension and how it will be managed. Also, speak to an accredited pension adviser about what you’ve been offered. 

Reporting pension fraud

If, after taking these steps you suspect the deal is far from legitimate, you should have no further contact with the company and report the matter to Action Fraud on 0300 123 2040.


Scam:A form of fraud or other dishonest scheme.

Pension liberation, pension loan, pension cashback, pension release: all ways of describing what is likely to be fraud.

Action Fraud: The UK national fraud and internet crime reporting centre. Run by the police.


Want to know more about releasing your pension funds at 55? Read our simple guide.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.