If anyone approaches you with details of a scheme that can release, unlock or transfer cash tax-free from your pension before you retire, be wary: it's likely to be a scam.
The Financial Services Authority warned this week that scamsters are getting more active, hoping to appeal to people's greed. "We are concerned that people may only see the instant financial gain rather than the severe future losses they could experience when they retire," the FSA said.
How does the scam work? Salespeople cold-call unsuspecting folk offering a pension transfer scheme that they claim could save cash. Typically they will suggest transferring the pension to an overseas scheme to save UK tax, or to sell your pension now to raise cash.
Normally, you can only take money from your pension when you are 55 or over, but some schemes claim to let you get your money earlier by borrowing from your pension fund. The problem is that early access to pensions is unlikely to make financial sense in the long-term.
The City watchdog warns: "There's a possibility that these deals are a complete scam and you will lose your entire pension. In addition to that loss, you will have to pay tax, penalties and charges to HMRC."
Even if it's not a complete scam, the salespeople could be trying to "churn" your pension by moving it to another supplier so they can earn fat fees. In the past people taken in by unscrupulous salespeople have seen their pension pot shrink by 20-30 per cent.
If you are persuaded to take money out of your personal pension plan early, it will normally be an unauthorised payment and, therefore, subject to tax charges. They will be up to 55 per cent on the value of the payment for a scheme member and at least 15 per cent of the value of the payment for the scheme administrator. You may also be charged additional penalty fees.
If you're tempted to move to an alternative pension provider based overseas, you should bear in mind that you will be giving up the protection offered by UK financial authorities. That means if things go wrong, you will have no recourse. You won't be able to take any complaints to the Financial Ombudsman Service or claim compensation if you lose money.
To find out if a financial firm that contacts you is above board and registered in the UK, check the FSA's register at www.fsa.gov.uk/pages/register/
If you think you may already be a victim of a pension transfer scam, or are worried about a company that has contacted you, call the FSA's Consumer Helpline on 0845 606 1234.
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