The cat-and-mouse game between HM Revenue & Customs and pension liberation firms has taken a new twist.
HMRC, pension regulators and financial firms have joined forces to try to stop dodgy pension liberation firms persuading savers to break the law by taking early cash withdrawals from their retirement funds.
Although switching pensions is not illegal, drawing money out before the age of 55 years old is unless special circumstances apply.
The penalties are fines and charges from HMRC which may follow years down the line when the advice firm offering help to withdraw the cash has long disappeared – along with fees of up to 33% of the pension pot for arranging the deal.
Tax penalties can amount to at least 55% of the pension fund, wiping out retirement savings for many.
Cash back offer
As HMRC tightens the rules to stop pension liberation firms setting up and accepting transfers from other schemes, the unlocking firms have now turned to transferring pensions for the under 55s to self-invested pension plans (SiPPs) and small self-administered schemes (SSAS) and offering a cash back for the business.
The warning comes from the financial crime prevention boss at pension firm Phoenix Insurance.
“Pension schemes could be set up online less than half-an-hour without any due diligence,” said Steve Hyndman. “HMRC finally decided to make it harder for companies to set them up.
“But this has led the pension liberation firms to look for other loopholes to exploit.
“SiPPs and SSaS are the new targets as they face a different regulation regime.”
Hyndman revealed Phoenix has blocked 612 pension liberation transfers worth £12.3 billion already.
Money rushed offshore
He advises anyone approached with a cash back offer should say no.
“We hear customers are offered huge returns in investments like land or gold offshore,” he said.
“Some have quoted 60% returns. My advice is if something sounds too good to be true, it generally is and once the money is switched offshore, that’s the last the customer will see of it. These advisers are not helping investors; they are helping themselves to fees and pension pots and just storing up future financial problems for the very people they should be helping.”
The average transfer pension liberation transfer request to Phoenix is for a pension fund worth £20,000. The unlocking firm offers a £5,000 cash back, but then charges a fee of £7,000. HMRC will then want their money back – and a 55% charge will cost £11,000.
That, says Hyndman, already adds up to more than the fund is worth.
