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New warning: Beware the rip-off merchants preying on your pension

Lana Clements

The stark new warning issued by the pensions regulator - following a massive rise in people being ripped off when trying to unlock their pension fund

Millions of Britons are being warned about the dangers of firms offering to ‘unlock’ their pensions, as part of a hard-hitting campaign.

By law, savers are not allowed to access pension money before the age of 55, but in the past couple of years a growing number of companies have found ways to get around the rules.

The firms appeal to cash-strapped households and make contact through unsolicited calls or texts, usually offering access to part of their money as a lump sum payment.

The unscrupulous companies take their cut through fees that can amount to half of the overall pension value. Those who follow through with the scheme are also hit with charges from HMRC for breaking the rules.

Any remaining savings are likely to be invested in highly risky, unregulated investments, often based overseas. As a result, people who use the schemes are usually stripped of any money to live on in retirement.

The FSA’s head of financial crime, Sharon Campbell, said: "Savers should be very wary of pension release schemes which often carry punitive, hidden rates of commission and where the promised investments may just be scams. They could end up losing all of their hard-earned pension.”

“Investors are very often left even worse off than they were before they started,” said Tom McPhail, head of pensions research at Hargreaves Lansdown.

“Pension unlocking companies pose a real risk to unwary investors, causing additional hardship and misery to people who are very often in a difficult financial position to start with. Hopefully the measures now being introduced will at least cut down on the number of people who fall prey to these schemes,” he added.

The burgeoning problem has forced the industry watchdog to take action.  An estimated £25 million was accessed early at the start of 2010, but this figure leapt to £200 million by the end of 2011, according to industry figures.

Pension providers and administrators will now try to intervene when people are requesting a “pension transfer” and warn of the risks. Information provided to savers will feature scorpion imagery to illustrate the deadly threat unlocking poses to pensions.

Once an investor has chosen to transfer to an unlocking scheme, it is often too late to get the money back.

Hargreaves Lansdown recently turned down requests to transfer pensions to schemes it suspected were pension unlocking and urged other administrators to do the same.

Pensions minister Steve Webb said: "Money in a pension is there for retirement and should not be released before at least the age of 55. The Government is investigating a number of schemes where firms appear to be preying on people when times are tight, and I am working closely with the pensions regulator to ensure rules are not being broken."

Pensions regulator chief executive Bill Galvin said: “There can be a huge sting in the tail for those that are tempted by the sales patter.”

Things to look out for:
•    Being approached out of the blue over the phone or via text message.
•    Pushy advisers, often unregulated, who claim to be able to help you access your pension before age 55.
•    Companies that offer a ‘loan’, ‘saving advance’ or ‘cashback’ from your pension.
•    Any reference to ‘loopholes’, overseas investments, creative or new investment techniques.

If you think you may have been a victim, or if you have information regarding pension liberation fraud, contact Action Fraud on 0300 123 2040.

Further information of the consequences of the schemes is available on The Pensions Advisory Service website.