Pension liberation firms emerging from the woodwork to dupe investors over retirement reforms

5th September 2014


Insurer Prudential has warned that more and more disreputable pension liberation firms are coming out of the woodwork hoping to take advantage of the new pension reforms to mislead consumers.

The firm’s retirement expert Vince Smith-Hughes says that he fears that such unscrupulous firms will take advantage of next April’s retirement reforms, which allows people nearing retirement to access all of their pension, to convince others to transfer money to them and ‘liberate’ their pensions.

Prudential wants the government to introduce tougher legislation against pension liberation firms, though the firms already face regulatory sanctions including fines and bans for encouraging people to try and access their pensions early.

Many individual savers lose huge amounts facing tax bills of as much as half their savings having confused pensions liberation with legitimate strategies such as accessing tax free cash from their pension from age 55 onwards. The new retirement reforms, coming into force next April also allow those nearing retirement much more freedom in how they access cash.

Smith-Hughes says: “We have seen an increasing use of pension liberation schemes. These things are very toxic. I don’t think you can buy barge poles long enough to touch these things with. My worry is that come next April when people are starting to talk about being able to take as much out of your pension as you like, it almost plays into the hands of this type of firm which will encourage people to do something they shouldn’t be doing and which could be very financially penal to them.

“I would like to see more done with the pension legislation. We have a list of schemes we won’t transfer money to, but it is almost a continual stream, with more of these schemes coming out of the woodwork. If we can legislate against it we should. We need to take that risk away. There have been horror stories of people who have lost all their funds.”

Smith-Hughes remains hugely supportive of the retirement income reforms in general, though he says there is some risk that people either take out all their pension money in one go or that they leave their funds invested but adopt the wrong investment strategy which means they also run out of money in the short or medium term.

“We need to make sure people don’t assume that they should take all the money in one go. We may see people becoming higher tax payers for the first and only time in their lives. Even if they want to get their money out quickly, it could be done more effectively over a number of years, perhaps two or three,” he says.

He also worries about the rise of the DIY investor.

“The third danger is the rise of DIY investor. People in drawdown arrangements selecting their own funds, making their own portfolios and taking unsustainable levels of income. They won’t understand the pitfalls and could run out of money when they haven’t got an effective strategy.”

Hughes says the government’s retirement guidance guarantee is going to be vital in making sure people make the right decisions. “We need to educate people as much as we can.”

He believes that those with a small amount of money invested in a pension, say £5,000, may take the money in one go and arguably be right to do so given how little retirement income this may generate.

Those who have managed to accumulate a bigger pot of money say £500,000 are much less likely to want to take all the money in one go, he adds.

Smith-Hughes says it is important to establish what is a sustainable level of income for people to take from their pot and that advisers and pension companies are working on how to approach this, given the new freedoms.

1 thought on “Pension liberation firms emerging from the woodwork to dupe investors over retirement reforms”

  1. george the first says:

    This is why it is so important to deal only with professionally qualified advisers, ideally face to face. Either an IFA or from one of the reputable networks. Yes you will pay a fee, but it will be money well spent and save you thousands.

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