Three Magic Words That Give Away A Pension Scam

Consumer watchdogs have a list of three magic terms that reveal a pension liberation scam.

After analysing sales techniques and complaints about pension liberation scams, the watchdog has discovered that most fraudsters try to entice their victims with the three terms.

Pension Life runs a service that offers kite marks to identify good pension advisors and a list of suspected scam schemes.

The organisation argues that ironically, financial freedoms designed to stop pension liberation scams have increased the opportunities for crooks to snatch retirement savings.

The words to watch for

The three common terms that scammers tend to use are:

  • Legal loophole – Bogus advisers tend to suggest that retirement savers can legally access their pensions before they reach the age of 55 without paying tax.

This is untrue. No legal loophole is available and any money taken from a pension by a saver under 55 years old is taxed at 55% or more by HM Revenue & Customs (HMRC) as an unauthorised withdrawal.

The only exception is if the retirement saver is terminally ill.

  • Sophisticated investor – If an advisor suggests you should regard yourself as a sophisticated investor; the likelihood is they are attempting to persuade you to put your money into an unregulated investment that is outside the reach of an official ombudsman or compensation scheme
  • Free transfer – Only footballers get free transfers. Pension investors generally pay for advice and their money is subject to ongoing fund administration charges.

Ask for a breakdown of these figures – but do not expect the truth, although some QROPS offer up to a 30% tax-free lump sum.

Don’t forget tax – only 25% of an onshore pension is tax-free

Choosing the right IFA

Pension Life explained that retirement savers can only expect good pension and investment advice from regulated IFAs, whether they are looking at onshore financial planning in the UK or offshore Qualifying Recognised Overseas Pension Schemes (QROPS) as expats.

“Advice should be regulated by a government body issuing licences for insurance or investment advice – and that goes for QROPS as well as other pensions,” said a spokesman for Pension Life.

“The advisor should be qualified by accreditation to a professional institute that can verify their competence; bearing in mind different licences may be wanted for investment, pension and tax advice.

“The advice they give should also follow local financial regulations and the IFA should have professional indemnity cover to deal with claims relating to the advice they are giving.”

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