Workers warned of rip-off deals to unlock pension cash

THOUSANDS of workers are being targeted by a scam that can rob them of their pension, a report warns today. Growing numbers are being offered the chance to release cash from their pension pot early – only to be hit with hefty hidden charges.

Savers with a pension may take out 25 per cent of its total value in a tax-free lump sum at 55, in a move known as pension unlocking.

However, some firms offer to release part or all of a worker’s pension pot at a younger age in return for a percentage of the total.

Those who are tempted i nto doing so – possibly to pay off a mortgage or fund their children’s education – are later hit with tax bills that can leave them with just a fraction of their original fund left. A report highlighting the con is published today by The Pensions Regulator, the Financial Services Authority and HM Revenue and Customs. They have taken the unusual step of issuing a joint warning to demonstrate the seriousness of a problem they say affects thousands every year.

Last year, about £200million was taken out via the so- called ‘pension liberation’ schemes.

But Victoria Holmes of The Pensions Regulator said: ‘If the offer sounds too good to be true, it probably is.’ Jonathan Phelan, head of the FSA’S unauthorised business department, added: ‘There is a high chance that these are scams run by illegitimate firms trying to con individuals out of their pension money.’

Most fraudsters fail to tell their victims that they will incur massive penalties from HMRC for accessing their pension early.

If, for example, a 50-year-old man has built up a pension pot worth £20,000, a firm may offer to give him £16,000 and take £4,000 in commission after ‘liberating’ his savings. However, hidden taxes and unauthorised payment charges to HMRC could lead to a bill of 55 per cent of the original fund. The victim could have to pay another £11,000, leaving him with just £5,000.

Pensions Minister Steve Webb said: ‘I am very concerned that people will end up poorer in retirement as a result of these dodgy deals. I hope people listen to these new warnings and think twice before making a decision they could later regret.’

The number of workers in a company pension scheme has fallen below 50 per cent for the first time since 1997, official figures show.

About 48 per cent are now in a workplace scheme, the Office for National Statistics said.

But there is a huge gulf between sectors, with 83 per cent of public employees in a scheme compared with a third of those in private companies.