One of Britain’s biggest financial firms has broken ranks with the government in the fight against pension liberation fraud.
LV has spoken out in favour of letting retirement savers access their pension cash before they reach 55 years old.
The idea is that anyone looking to unlock a pension early is probably in financial trouble, so building a fail-safe into pensions to make drawing down funds legal would be a better way of approaching the problem.
Pensions minister Steve Webb has warned that he is considering new laws to outlaw pension liberation.
That leaves an uneasy conclusion in the minds of many.
Is pension liberation really unlawful?
The case for and against
The Pensions Regulator won a case in the High Court that found a specific scheme was a fraud, but the ruling was not wide enough to consider pension liberation in general.
The pension minister calls accessing funds early ‘fraud’, which indicates some sort of deception is involved on the part of the retirement saver. However intent to deceive would seem to be hard to prove in court.
If the minister is proposing new legislation that would suggest current laws do not cover pension liberation.
Taking the three together, the logical conclusion is pension liberation is not illegal despite regular diatribes from the minister condemning the practice.
It’s much like the government media stance about tax avoidance. The Chancellor and Prime Minister continually call tax avoidance illegal and immoral when tax law states the opposite.
Sensible financial planning
Deliberate evasion of tax is a criminal offence, but arranging tax affairs to pay the least tax allowed is perfectly acceptable to the courts.
Ray Chinn, LV head of pensions said: “While supporting a government crackdown on pension liberation, we see many retirement savers trying to get at their money for what they consider a good reason and changing the law will not change this need.
“We would support an effective way for people to draw their tax free lump sum early to pay off massive debts, perhaps by restricting the amount that could be drawn down”
Chinn explained that research by LV revealed that if retirement savers could access some of their pension while they were saving, they could have been encouraged to put more money aside.
“Many people don’t tie up cash in a pension in case they need the money for something else and then tend to spend it anyway. Our view is pension saving could be encouraged if sensible rules were in place to make the product more flexible.”
