Qualifying Recognised Overseas Pension Schemes (QROPS) are under scrutiny as the tax man and pension providers fear pension liberation is moving offshore.
In a pension summit between HM Revenue & Customs (HMRC) and financial firms, providers warned that pension liberation advisers were changing focus.
Pension scammers are urging pension savers to switch their funds into an offshore QROPS even though they have no intention of leaving the UK.
Once the funds are overseas, the scammers allow pension savers to withdraw their retirement savings.
HMRC told the forum that this was not allowed under QROPS rules that were designed to comply with European Fundamental Freedom rules.
QROPS investigation
“We are examining QROPS to make sure that they are fully complying with legislation as part of a continuing campaign to stop pension liberation,” an HMRC spokesman told the meeting.
Pension providers also tipped off HMRC that some pension liberation firms are encouraging retirement savers over 55 years old to switch their pensions to other schemes with an earlier retirement date.
This allows someone with a retirement age of 65 years old to transfer their savings to another scheme and then take a 25% lump sum without paying tax, although many advisers are charging fees for a free service the saver could manage without them.
“No pension rules are broken and pension savers are entitled to manage their own money within the rules,” said the HMRC spokesman.
“The fee problem and the way the scheme is promoted is possibly an issue for pension regulators.”
Rip off fees
HMRC also indicated that pension liberation action was ‘working well’ and promoters were probably looking offshore because new laws were slowing down applications to form new UK pensions.
Earlier this year, Pensions Minister Steve Webb warned that pension liberation scams were costing retirement savers up to £500 million a year.
Typical scams include rip-off fees of up to 30% of a pension pot and cash disappearing offshore or into dubious high-risk investments.
Retirement savers under 55 years old who are paid cash out of their pension funds often do not realise that HMRC will charge 55% of the value of the money they take as a tax penalty.
Someone taking £50,000 cash from a pension, including a £12,500 fee to the pension liberation adviser, will pay a penalty of £27,500, leaving them with just £10,000 of their lifetime savings.
