The battle to combat alleged pension liberation fraud is hotting up as consumer watchdogs issue yet another warning against taking retirement savings early.
The Financial Conduct Authority (FCA) has told consumers to challenge any financial adviser recommending they switch pension providers to unlock funds before the age of 55.
This is a change of tack in the battle against pension unlocking or liberation.
The strategy involves a pension saver transferring their fund away from their current provider to another scheme, which arranges a loan against the pension pot.
Regulators claim this is illegal as pension laws forbid retirement savers from accessing the funds before they are 55 years old.
Pension unlocking ban
They point out the fees are high, the trustees invest pension funds in high-risk strategies and HM Revenue and Customs may consider the transfer an unauthorised pension withdrawal and charge a penalty starting at 55% of the value of the transferred fund.
Until now, the regulators have tried to tackle pension liberation by attacking the schemes in court.
Last year, one scheme was declared unlawful in the High Court, but the judge stopped short of outlawing the practice.
The Pensions Regulator has tried to get the courts to ban pension liberation, but the case ran out of time and is adjourned until the autumn.
Now, instead of tackling pension providers, the regulators are going after financial advisers by questioning the validity of their advice for someone to transfer funds to a pension unlocking scheme.
Challenge advisers
If that advice led to a complaint against an adviser, they could face fines and losing their licence. Customers could also claim compensation against their business insurance.
The FCA said: “Retirement savers should be cautious about any adviser offering to assist them to take cash from their pension before they are 55 years old as it is more than likely a scam.
“If a financial adviser is suggesting you should do this, then you should take a second opinion or contact us to find out what your options are.”
As an example, the FCA cited a consumer who had transferred £150,000 into a pension unlocking scheme who lost £100,000 of their retirement savings in fees to advisers and tax.
“It seems that few of the advisers working in this field are authorised to give pension or investment advice. If you are approached by someone offering pension unlocking, ask for their FCA registration details and check their credentials.”
