60 second guide to pension unlocking scamsHow to avoid falling victim to pension fraud

16 February 2013

Hands holding two eggs saying retirement and nest egg

The pensions watchdog has launched a new campaign to warn people about a pension scam enticing savers to release their pension early.

According to the Pensions Regulator, victims are contacted by email, telephone or text message by fraudsters trying to dupe them into transferring their funds to bogus pension arrangements for a commission fee.

We look at what pension unlocking is and how to avoid becoming a victim of the scam.

What is pension unlocking?

Pension unlocking is getting access to money in your pension fund before normal retirement age.

Although it is risky as you will get a lower monthly income than if you had waited until age 65, it is legitimate. Normally you can take money from your pension from age 55.

How do the pension scams work?

Fraudsters claim they can get you access to your money before age 55 by borrowing from your pension fund. This is known as 'pension liberation'.

In rare cases, such as terminal illness, you can get access to your money before 55 but for most people any offer to help you do this is likely to be fraudulent.

What are the risks of falling for the scam?

You could face tax charges of as much as half the value of your pension as accessing the money early is classed as an unauthorised payment. This is because there are tax advantages to saving in a pension. If you release the money early it is not being used for the reasons the tax advantages were granted so high tax charges are applied. 

People who fall victim to pension liberation fraud are not usually told about the tax risks.

Fees are also charged by the fraudsters to transfer the money to a new scheme, which can be as high as 20% of your pension savings.

Take a look at our guide to spotting a scam

How can I avoid becoming a victim of the scam?

The Pension Regulator has five tips to avoid falling victim to the scam:

  • Never give out financial information to a cold caller.
  • Check the credentials of the company and any advisers, who should be registered with the Financial Services Authority.
  • Ask for a statement showing how your pension will be paid at retirement and question who will look after your money until then.
  • Speak to an adviser that is not associated with the deal you've been offered for unbiased advice.
  • Never be rushed into agreeing to a pension transfer.

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