Almost one in seven pension schemes have had requests for pension liberation transfers, according to a new survey.
The Pensions Regulator has asked trustees and administrators of Britain’s 44,440 pension schemes whether they have had an approach by a suspected pension liberation outfit.
Around 14% answered yes – which equates to around 6,300 pension schemes.
Before the survey, the full extent of pension liberation activity had not been assessed, but the results show just how many retirement savers are trying to get early access to their money.
Pension liberation is not illegal, but often retirement savers do not realise the financial implications of unlocking their funds.
The process involves switching a pension from a regulated fund to a scheme that purports to be a genuine pension.
Transfer problems
However, the advisers running the pension liberation scheme claw a fee of between 20% and 30% of the transfer fund value for making the arrangements.
The retirement saver is then paid the rest, generally as a loan against the fund.
But in most cases they do not realise HM Revenue & Customs (HMRC) regard the unlocking as an unauthorised withdrawal and will demand a tax payment of between 55% and 70% of the value of the transfer fund.
In the worst case scenario, some pension liberation advisers have taken all the cash transferred into their scheme and moved the funds offshore where they cannot be traced.
The Pensions Regulator’s study also disclosed that although nearly all pension administrators were aware of pension liberation schemes, around a fifth had no systems in place to identify suspicious transfers.
Many pension providers are refusing or delaying transfers to suspected liberation schemes at the request of the Pensions Regulator and HMRC.
Legal grey area
HMRC was also handed new powers by Chancellor George Osborne to make setting up a pension scheme more difficult to deter pension liberation firms.
The legal status of pension liberation is a grey area. In principle, drawing cash from a pension before the age of 55 is not illegal, providing any tax due is paid to HMRC.
A number of cases protesting against delayed transfers are before the Financial Ombudsman awaiting a ruling.
Some schemes have also been taken before the courts by the Pensions Regulator and were branded as fraud and scams by judges.
However, those rulings only applied to those specific cases and not pension liberation in general.
