Financial regulators labelling pension liberation as fraud

Published:  20 Feb at 6 PM
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The UK’s consumer watchdogs and various financial regulators are attempting to outlaw pension liberation to the extent that they are describing a legal right as fraud.

Retirement savers are allowed to access their pension funds as a pension liberation exercise before their 55th birthdays should they wish to retire earlier, although they will then be liable for tax penalties and other charges. Recently, the Pensions Regulator won a court case brought against certain pension liberating schemes resulting in their being outlawed as fraud.

However, in this case, the judge refused to declare all such schemes as fraudulent. The judgment left the industry in a state of confusion as, although withdrawing early is unwise from an investor’s point of view, it is clearly not illegal.

Investors who unlock their pensions before the age of 55 face massive bills to the liberation firm of up to 33 per cent of the fund’s value, as well as a tax penalty to HM Revenue and Customs of 55 per cent. Those deciding to take this road are clearly either in need of what’s left for personal reasons or are in dire financial straits.

When asked why HMRC is so keen on making pension liberation illegal, Margaret Snowdon, chair of an industry working party, agreed that pension liberation is legal but added that advisors have been known to cheat clients out of their entire pension pot. Around 40 cases are at present before the Financial Ombudsman awaiting a decision which is expected to favour the complainants.

Expert opinions suggest that weeding out scoundrels and fraudsters is essential, but add that it would just plug a leak in the legal pension libration process. Changing the rules so that investors can get their hands on their own money at a time best suited to them is the obvious answer.
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