Out-Law News 2 min. read

Expert casts doubt on connection between 'huge rise' in pension liberation fraud and new freedoms


It is "far too early" to read anything into a reported increase in cases of pension liberation fraud and the increased freedom to access pension savings that took effect in April, an expert has said.

Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, was commenting as Action Fraud reported that losses due to scams almost tripled in one month, from £1.4 million in April to £4.7m in May. The figures showed a £932,000 loss in March, according to a BBC report.

Fairhead, an expert in pensions litigation and liberation fraud, pointed out that the number of cases of reported fraud actually fell over the same period, from 82 in March to 78 in both April and May. There were 240 cases of reported pension liberation fraud in February, according to the BBC report.

"I would certainly not expect this to be linked to the introduction of 'Freedom and Choice'," he said.

"Whilst there is every expectation that a number of people could be scammed out of their pension funds as a result of the changes in place since April, it will surely take some time before victims realise their money is lost unless they have fallen prey to the most basis of scams and simply not received cash they thought they would be taking from their pensions," he said.

"It also appears from the figures that the reported cases have not grown in number in the last few months, so the driver for the larger losses might be some sizeable individual pension pots that are believed to have been lost," he said.

"What does seem striking from these figures is that, if these sorts of sums are being reported as lost on a monthly basis, the impact of pension liberation fraud is being felt in a very big way. Irrespective of Freedom and Choice, I would expect this to continue in the coming months as individuals realise that the schemes they transferred into even two or three years ago were not all they claimed to be. In addition, with recent news about action by the Insolvency Service in relation to suspected pension liberation schemes, we might well see further large reported losses from members of the affected schemes," he said.

This week, the various government agencies, regulators and law enforcement bodies operating under the 'Project Bloom' initiative set up to tackle pension fraud issued new warnings to help savers "recognise the hallmark" of pension scams and to protect themselves. Scammers often contacted victims out of the blue offering them the opportunity to "unlock" their pension savings early, in many cases "complete with glossy brochures and professional websites that make them look highly credible", pensions minister Baroness Altmann said.

Pension scheme rules prevent individuals from claiming pension benefits until they reach the age of 55, unless doing so on ill-health grounds. 'Unauthorised payments' from pension schemes can be subject to tax charges of as much as 55% of the value of the payment, while many schemes claiming to offer early access to savings invest the balance in complex, high risk investments that may be based offshore.

Changes to the law from April this year gave members of defined contribution (DC) schemes more freedom to access their savings in any way that they wish once they turn 55 without incurring heavy tax penalties, although the rules remain as they are for those that have not yet reached pension age. Pension fraud expert Ben Fairhead warned previously that scams would likely evolve to keep up with the changes, perhaps by encouraging scheme members to transfer to new schemes allegedly allowing them access to flexibilities that their own occupational scheme may not yet be able to provide.

Project Bloom has already had some success in tackling pension fraud, conducting a number of police raids and suspending 15 scam websites to date. The National Crime Agency (NCA) has also purchased 70 domain names in order to prevent them from falling into the hands of criminals. Last year, HM Revenue and Customs (HMRC) tightened its rules on pension scheme registration and introduced a 'fit and proper person' test for scheme administrators.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.