Watch out for pension scam

The Sunday Times has a good article today (Money 27 October) on pension liberation scams. I have previously highlighted this problem in our Scottish Pensions Bulletin, but it is worth repeating. Not least because I have personally had two approaches in recent weeks, and while I spotted the scam, others may not have my pensions knowledge.

Pension liberation scams are playing on many folks current financial problems with wages not keeping up with prices. In these circumstances people are looking at any means of freeing up cash rather than get into further debt. Pension funds seem like a good idea when you are approached by these cowboy firms.

Auto-enrolment is likely to add to the numbers open to this scam that has already attracted £420m from workers pensions.

The scam works by persuading savers to transfer their pension in return for a permanent loan that appears to get around tax rules that prevent access to funds before the Minimum Pension Age of 55. What they are not told is that they face a 40% unauthorised transaction charge, rising to 55% if they liquidate more than a quarter of the pension pot. When you add 30% commission, it leaves a paltry 15% for the worker.

Astonishingly, much of the scam mechanisms are not actually illegal. The government needs to take urgent regulatory action to safeguard consumers.