Savers Warned About Pension Unlocking Penalties

Freezing State Pensions Is Unfair, Argue British Expats Retirement savers who try to access their pension cash before the age of 55 face a tax bill of more than half the pension savings they have tried to unlock.

The stark warning comes from HM Revenue and Customs as the battle against pension unlocking fraudsters hots up.

Recently, a raid on a call centre closed down one firm believed to be responsible for generating email, text and phone messages to lure retirement savers into an alleged pension liberation scam.

Pension liberation or unlocking is when savers are persuaded to transfer their pension funds away from a reputable provider to another firm offering them early access to their funds.

Generally, no one can access pension savings before they are 55 years old, unless they are terminally ill or have a serious medical condition.

Untraceable transfers

Taking this money is an ‘unauthorised’ pension withdrawal and can lead to fines of 55% of the value of the transferred fund plus interest and other penalties.

HMRC warns that money switched in to an unlocking scheme quickly disappears overseas and is often untraceable – so savers risk losing their pension funds and then having to find extra cash to pay fines and other penalties.

Ministers are concerned that retirement savers with money problems are tempted by the quick fix solution pension unlocking offers – and then find they are worse off when they fork out to settle tax bills and have no money to fund their retirement.

Last year, judges ruled pension liberation was illegal.

Fines for pension providers

Now HMRC is encouraging pension providers to block transfers to suspicious funds – and if they make the switch the provider could face a penalty of 40% of the value of the transfer.

HMRC has warned pension providers that transfers will be scrutinised, but the tax man will not approve specific transfers between schemes and the provider holding the fund must make the final decision.

“It is for you as the scheme trustees and administrator to carry out due diligence and follow the guidance and checklist in The Pensions Regulator’s action pack to satisfy yourselves prior to making any transfer that such a transfer will be a recognised transfer within Section 169 Finance Act 2004,” says a pension newsletter from HMRC.

Retirement savers and providers unsure about the legality of a scheme should contact Action Fraud, the UK’s central scam-busting unit, which is building a list of pension unlocking fraudsters.

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