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Don’t be a victim of pension liberation scams

Don’t be a victim of pension liberation scams

Category: Pensions

Updated: 10/12/2014
First Published: 10/12/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

You work hard all your life, make regular contributions towards your pension, and have accumulated a decent pot by the time you're in your 50s. So why sacrifice it by putting it into the hands of fraudsters? Unfortunately, you may not even know you're putting your cash at risk, as research from Phoenix Group has found that pension liberation scams are becoming an increasing concern.

What's the problem?

The underlying problem is the growing number of fraudsters who are contacting consumers with the promise of giving them access to their pension pots before legal retirement age, but perhaps an even bigger concern is the number of people who are falling for their tricks.

According to the research, 37% of respondents have received messages via email or text inviting them to review their pension or release some of it as cash, while one in 10 had been contacted about a "forgotten" investment or savings policy that the firm could provide details on – in return for a fee. Even more worryingly, of those targeted by pension liberation schemes, 26% said they were tempted to take up the offer, and 15% said that they contacted the fraudsters as a result.

These figures show just how easily consumers could be tricked into releasing the cash from their pension pot, but what the fraudsters won't say is how much this will cost. Charges for this so-called service can typically be in the region of 30%, so consumers that fall for the scheme could lose a significant chunk of their pension savings, something that they simply didn't need to do.

"People can lose their life savings through these scams," said Steve Hyndman, head of financial crime prevention for Phoenix Group. "Many unscrupulous businesses offer customers the opportunity to unlock their pension, in exchange for cash, before they reach 55; often without making them aware of the fees they are charging for this service. The fees can be as high as 30%, in addition to the 55% tax charge they will incur for extracting money from their pot early." This could dramatically reduce an individual's pension pot and result in a significant loss of income in later life.

Confusion reigns

Arguably, the confusion surrounding pension reforms has exacerbated the issue. Many consumers simply don't understand what the reforms mean so are easily swayed into releasing their cash, while nearly a quarter of those surveyed still don't know what to do with their pension savings as they approach 55.

Fraudsters are targeting these vulnerable individuals, many of whom could be tempted to embark on such a scheme. Of respondents who were aged under 55 with a pension policy, 24% would consider releasing money from their pension savings before legal retirement age if they could, 15% would definitely do so, and 10% would consider releasing as much as they could immediately before putting the rest into an investment.

These consumers could be highly vulnerable to pension liberation scams, and it highlights the importance of proper communication around the pension changes – and the need to seek suitable advice.

Don't fall for their tricks

The key is to arm yourself with suitable knowledge around the pension reforms and your current policy, so you know exactly when you can access your cash, what you can do with it, and how much you can take tax-free.

Heading to the experts should be the only option, as although 27% would speak to family members for advice on making investment decisions, two-thirds wouldn't expect fraud if their relative had been promised cash from their pot if they transferred to a new pension scheme. Why run the risk?

Sylvia Waycot, editor of, comments: "We wouldn't let just anyone drive our cars or carry our wallets, and it's the same with our pension pots. Taking cash from your pension is a serious decision that should never be taken because of some chance cold call. To safeguard yourself and your money, it should be you that makes first contact with an adviser, not the other way round."

The research highlights the need for financial advice to protect consumers, ultimately ensuring that they're fully aware of the pension options available so they don't jeopardise their retirement funds. Falling for a pension liberation scam could have huge implications and could dramatically reduce an individual's standard of living in retirement, so don't fall for it – get the advice you need.

What Next?

Read our retirement guides

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.