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Pensions liberation: How scams are mutating post-Budget

Experts are warning an attempted crackdown on pensions liberation schemes has led scammers to change their tactics, with high-fee small self-administered schemes emerging as their latest weapon.

With HM Revenue & Customs making it harder for pensions liberation schemes to register and operate and The Pensions Regulator relaunching its public awareness campaign, those looking to get their hands on savers’ cash are becoming more sophisticated.

So what are their techniques? Can anything be done? And will all the talk of pension freedom in the wake of the Budget bombshell make it easier for unscrupulous firms? 


HMRC has been toughening up its checking processes in recent months. In October, the Revenue abandoned its ‘process now, check later’ approach in favour of carrying out detailed risk assessment
activity before registering a scheme.

From September, HMRC will also have the power to refuse to register or de-register a pension scheme if it appears the scheme administrator is not a ‘fit and proper’ person.

Experts say scammers are encouraging people to move into SSASs and charging high fees, using the promise of high returns as bait.

Aviva head of policy John Lawson says: “They’ve realised they cannot get pension liberation schemes past HMRC because they won’t register them, but if you are doing a SSAS you could probably demonstrate you are bona fide even with an HMRC visit.

“These people have found new ways to extract money from someone’s pension funds. They are taking it over five or six years in fees rather than in one big hit. On the face of it there is nothing illegal, but they are highly immoral.”

Lawson says he has seen returns of 12 or 14 per cent being offered through investments in foreign holiday property, sometimes in countries that the Foreign Office is warning people against travelling to.

AJ Bell technical resources manager Gareth James says the recent Government clampdown has seen an increase in the use of share price manipulation to con savers.

“The registration tightening has seen liberation involving suspected share price manipulation coming back,” he says. “It is a boiler room-type model where, by using a Sipp, a SSAS or another scheme that offers direct access to equities, some people will have taken control of a significant holding in an equity and manipulated the share price. They then trick people into investing and give them a proportion of their investment back outside of the pension but the share is often worthless.”

TPR estimates £495m has been lost to pension scammers in total, up 18 per cent from the start of the year. It adds the true number could be much higher.

Last week, the regulator re-launched its ‘Scorpion’ public awareness campaign, targeting consumers with hard-hitting messages about the dangers of accessing pensions early. The regulator has also replaced the word ‘liberation’ with ‘scams’ in its literature.

Cracking down

HMRC’s crackdown on registrations is having some effect. In the six months up to October last year, it received 11,184 applications to establish a scheme. Between October and April this year it had only 4,530 applications and 8 per cent of those were rejected.

TPR executive director for defined contribution Andrew Warwick-Thompson says: “That gate-keeping process appears to have discouraged applications and seems to have been successful in weeding out suspicious-looking applications.”

But Lawson says it is easier for SSASs to look legitimate compared with cruder liberation schemes.

He adds: “HMRC might have more difficulty stopping this kind of thing under the current rules because it is not on the face of it what you might call traditional pensions liberation.”

In 2012, the FSA published guidance requiring Sipp operators to conduct due diligence on new investments to ensure they are safe and not a scam or linked to pensions liberation.

Dentons Pensions director of technical services Martin Tilley says requiring SSAS trustees to carry out similar checks could help.

He says: “The tightening of HMRC’s registration process is a sign it is not going to stand for abuse. But the requirement for a fit and proper person to carry out due diligence on assets should be applied to SSAS too.

“Also, pre-2006 there was a requirement for a pensioner trustee. These were HMRC-appointed and co-owned all of the assets, so it was impossible to get money out without their approval.”

Lawson says restrictions on who can set up a SSAS should also be considered.

“You could say only a trading company with existing profit and loss can set up a SSAS,” he says. “We can use the law to stop this if the Government is willing to change the law.”

Liberation vs freedom

In the Budget, Chancellor George Osborne announced a pensions revolution, allowing people to take their entire pension pot as cash when they reach age 55. Savers will also be offered free guidance at retirement.

James says this could be abused by those looking to scam savers.

He says: “Pension liberators will play on the message you can access your pensions after 55, but use it to mislead people into thinking they can access it before then.”

Warwick-Thompson says despite a hike in the number of scammers approaching people since the Budget, the changes themselves should not create a problem as the underlying message has not changed.

He says: “From April 2015 – if the proposals get through Parliament as envisaged – it will still not be possible to access your pension scheme before 55 without a tax charge and after 55 you will be able to access your whole pot but you will have to pay tax on it.

“The message is still the same – if anyone says you can access your pension pot before or after 55 without paying tax, you can’t. It’s a scam.”

Ensuring people do not lose their life savings to fraudsters is not all that rests on getting this right. 

If scammers, wise to the ways of regulators and inventive in their approach, manage to take advantage of Osborne’s pensions revolution, the political cost to the Government could be huge.

“There will always be people promoting these schemes and those who are perhaps desperate enough to need them,” Tilley says. “Whatever rule-tightening you put in place people will always find ways around it.”


  • May 2011: Money Marketing reveals concerns over pension reciprocation plans being used for early access to savings.
  • Jun 2011: TPR seizes control of bank accounts of six pensions schemes engaged in pensions reciprocation.
  • Dec 2011: Amount of money accessed early from pension pots hits £200m, up from £25m at the start of 2010. 
  • Feb 2013: TPR, FSA, HMRC, The Pensions Advisory Service and the Serious Fraud Office develop a series of documents to warn over pensions liberation, as TPR targets providers in awareness campaign.
  • Oct 2013: HMRC ditches its ‘process now, check later’ approach to registering pensions schemes in favour of carrying out a detailed risk assessment ahead of registration.
  • Oct 2013: Pensions minister Steve Webb says £420m released through liberation schemes, with TPR looking at 27 live cases.
  • Mar 2014: HMRC tightens registration process, including power to inspect premises and new penalties for false information. 
  • Jul 2014: Standard Life and lawyers warn that automatic transfers as part of the Government’s pot follows member initiative could reverse progress made in reducing pensions liberation.
  • Jul 2014: TPR relaunches ‘Scorpion’ liberation public awareness campaign targeting scheme members, with a focus on scams.
  • Sep 2014: HMRC will require pension schemes to have fit and proper person ahead of registration.

Expert View


Pension liberators are pretty typical in one regard: in all stages of the liberation process – the sale of the idea to the pension scheme member, the process by which the money is extracted from the scheme and the amount of money paid to the victim – they find the path of least resistance and lowest cost the most attractive.

The simplest model for liberators has been to try to transfer funds into schemes they control. The good news for those trying to prevent this activity is HMRC has taken steps to make it much harder. It is more difficult for dubious schemes to register with HMRC. It is also simpler for transferring schemes to obtain information from HMRC which will support a decision to block a transfer if they have identified any concerns in their own due diligence.

The problem is when the door is closed on the simplest or lowest-cost model, the liberator will move to the next best option. This is why we expect to see liberators targeting investment-based models within genuine registered pension schemes.

The new pension freedoms are good news for many involved in pensions, but the risk is this is also true for the liberators. The message that those over 55 will be able to legally take all of the funds out of their pension makes it easier for them to sell their schemes as genuine to under-55s. 

HMRC is doing a good job of closing the door on the transfer model, but as that door shuts, the liberators will just look for another.

Gareth James is technical resources manager at AJ Bell

Anatomy of a scam

The Boiler Room: Investor A is told to invest their entire pension into shares of company B in exchange for a cash payment of £30,000. Investor A is told that Company B is a legitimate company and that this is proven by the fact that it is listed on a HMRC recognised stock exchange, but that they must not try to sell the shares in company B for at least five years so it can grow and deliver a return. Investor A is told to transfer their pension into SIPP Z and to open an account with execution-only stockbroker C. 

The investment of £100,000 is made, investor A receives £30,000 from the people in the background, but the shares are in reality worthless and investor A faces a tax charge on the income. 

The Esoteric Investment: Investor B receives a call offering a free pensions review in which they are told traditional pensions have fallen in value over the last 10 years because of poor returns on stock markets and high charges. 

They’re told that they can achieve a guaranteed return of 10% per annum from their pension by transferring it to a scheme that offers access to high-returning bio-oil investments and that they’ll receive 25% of the amount invested as a commission.

Investor B is told old-style pensions don’t allow this type of investment so in order to invest into this, a company will be set up with Investor B as a director. 

A pension will be set up linked to that company and the money from their pension will be transferred to it in order to make the investment.  The funds are transferred to the new occupational pension scheme but then disappear as do the people behind the scheme.



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. We have gone from one case in twelve months as an average over the last 10 years to 9 cases in 6 months.

    This is a bigger problem than people realise and needs a serious rethink. From what we see the difficulty is not about access to the funds without paying tax – that is never mentioned. The high returns or exotic property deals are the worse type. The fees are over the top (3% per annum! plus sipp provider fees) and often by unregistered (so called) financial advisers.

    With the new rules due next April the scammers are setting up on an almost industrial scale and the FCA, pensions regulator and MAS need to act urgently to educate the public and stop people being defrauded. Every IFA I have spoken too know of clients who have received the cold calls.

  2. Gordon Sinclair 1st August 2014 at 7:52 pm

    @ Greg Heath

    Agree with all you say…this has been going on for quite a while now.

    Unregulated advisers (and some not so honest regulated) getting a mainstream, respected SSAS provider to set up the scheme…removing said provider from any role and then doing what the hell they wanted with the funds.

    HMRC took far too long to pick up on this as people genuinely believe, rightly or wrongly, that they have very little chance of getting caught.

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