An astonishing nine complaints about pension liberation cases are with a consumer watchdog – and eight are complaining their attempts to get at their cash early have been thwarted.
Pension laws do not allow anyone under 55 years old to access their retirement savings except in extreme circumstances.
However, the financial services industry has seen a succession of court cases, police raids and rule tightening all aimed at closing a loophole that lets a pension saver switch their fund to a ‘liberation’ company that allows them to take their cash.
The problem is the pension liberation firm grabs a fee of up to 35% of the fund and HM Revenue and Customs applies a penalty charge of 55% of the fund as the withdrawal breaks the rules.
That leaves the retirement saver with just 10% of their cash and no money left to fund a pension.
Exploitative and undesirable
The pension ombudsman Tony King considers pension liberation as “undesirable and exploitative”.
“Nine pension liberation cases are before the ombudsman. Most involve complaints that a pension provider has blocked a transfer of funds to a liberation provider,” said a spokesman.
“Each complaint is under consideration and we know the industry is on tenterhooks awaiting the outcomes.”
The ombudsman explained that the watchdog was looking at the merits of each complaint and working hard to make the right decisions.
“The trouble is the legislation is not clear and although the saver is not acting illegally or improperly, the consequences of their actions may seem unwise or that a third party is taking advantage of them,” said the spokesman.
Irrational choice
“Even though losing a huge part of a pension fund may seem irrational, the choice might be the right one for someone in difficult financial straits.”
Pension liberation has been labelled as a scam and even fraud by other regulators taking action to stop the practice.
Pensions minister Steve Webb has recently disclosed that around £600 million of retirement savings has been siphoned off by financial firms arranging pension liberation schemes.
The ombudsman has stated that the consumer group viewed pension liberation as bad for retirement savers – a stance echoed by regulator the Financial Conduct Authority, which published guidance explaining pension liberation was always a poor financial option and advisors should steer clear of suggesting a transfer into a pension unlocking firm.
Eight of the complaints relate to the blocking of fund transfers to a pension liberation scheme, while the other is from a retirement saver complaining his pension provider allowed such a transfer without warning of the financial consequences.
