Just over a month ago, chancellor George Osborne announced that anyone with a pension would soon be able to cash in the lot on retirement.
He didn’t actually go into much detail at the time, but anyone who read the small print would soon have noticed that these withdrawals would be taxed at the pensioner’s marginal income tax rate.
So, anyone taking out a substantial sum would end up paying the highest current rate – 45% – on a large percentage of their stash. That’s something very few of us would like to do.
Unfortunately, the second part of the message hasn’t got through to everyone. As a result, says John Fox of Liberty SIPP in the Independent on Sunday, “the Budget announcement has given pension fraudsters a new lease of life”.
Pension liberation fraud has been around for a while. You get a call from someone offering to help you get early access to your pension money. You think that sounds nice. You agree to transfer your pension to their scheme. You then pay them a whopping great fee and take your cash.
Shortly after that, HM Revenue & Customs come calling and charge you a 55% penal rate of tax on the entire amount – that being the normal rate charged on unauthorised withdrawals.
The Independent on Sunday points to one individual who took out his £150,000 pension pot in this manner to settle some debts. He paid a £15,000 fee to the scheme providers, then an £82,500 tax bill. He ended up with a mere £52,500 in cash.
Some of the pension liberators act just about within the law. So if you want to be fool enough to break your pension and pay a 55% tax on it, when in only a matter of months you can have 25% tax free and the rest of it at your marginal income tax rate, you will be behaving entirely irrationally – but you won’t be committing a criminal offence.
However, whether they are within the law or not, these ‘liberators’ are all clearly stepping up their activity before the new rules render their fraud irrelevant. It is, says Pensions Insight, a bit of a “while stocks last” situation. So what should you watch out for?
Anyone promising you that they can release your pension before next year; anyone offering you liberation before you hit 55; anyone who texts or cold calls you on anything to do with your pension; or anyone working for a company you can’t easily find on the Financial Conduct Authority (FCA) register.
Finally, watch out for fees. If you can’t figure out exactly what they are, or you can’t get hold of papers with the full details on them, you know that some sort of scam is underway. That holds good not just for pensions-related products, but for every single financial product on the market.