Savers could lose 85% or more of their pension funds to fraud. The warning comes as more British workers fall victim to traps set by pension liberation providers offering early access to pension funds. HMRC discourages this kind of financial activity with a hefty 55% tax, while pension liberation advisers can charge an additional commission fee of up to 30%. With as little as 15% left of retirement savings, the cost of such a decision could be several more years in work.
With many employees automatically placed into workplace pension schemes, the temptation has never been higher – a reality that pension liberation solicitors have heavily capitalised on through cold-calling and text messages. Employee benefits company JLT claims that pension fraudsters are to blame for the expected £1bn released from pension funds this year alone.
Hugh Nolan, executive director at JLT, says fraudsters are specifically targeting employees who have been automatically enrolled in pension schemes. And as more companies are introducing auto-enrolment, pension fraud could become an even greater threat to British employees over coming years. “The problem is that current rules mean pension scheme trustees have a legal obligation to release member’s funds and there is nothing they can do to stop it. That needs to change,” said Nolan.
Pension liberation firms will typically invite savers to transfer their workplace pension funds into offshore scam occupation schemes. In return they offer a permanent loan, which they claim offsets the tax rules withholding access to pension funds for savers under the age of 55. While not illegal, this process is deceptive and victims will face a 40-50% unauthorised transaction charge.
Stephanie Jeavons of the National Crime Agency, which recently shut down 10 misleading pension liberation websites, said: “The consequences of being tricked into losing pension savings through tax penalties and worthless investments can be devastating. Some victims of pension liberation fraud only find out when they retire that much, or all, of their pension is gone.”
Incorporating greater financial risk management training within your company could help to raise employee awareness and prevent unnecessary financial losses. If you offer an auto-enrolment workplace pension scheme, be sure to inform your employees of the scams spreading across the nation.