The Pensions Regulator, the FSA and HMRC have renewed warnings over pension reciprocation plans and other pension liberation arrangements after a joint investigation revealed almost £200m has been transferred into the schemes to date.
The three regulatory bodies say there has been a spike in the amount of money invested in these types of schemes since 2010, with around £175m transferred into the arrangements since May 2010.
The Pensions Regulator says the recent increase comes as a result of the economic downturn and subsequent job losses, with people “desperate” to access money.
TPR case team leader Victoria Holmes says: “These offers are typically advertised on websites or small adverts in newspapers. If the offer sounds too good to be true, it probably is.
“It may simply be a scam to get hold of your money. Transferring your pension to one of these questionable investment models could result in you losing your entire pension.
“Immediate financial gain may sound tempting, particularly in the current economic climate. But people should not be taken in because they are likely to face substantial tax charges and will be poorer in retirement.”
Money Marketing first exposed the potential risks of using a pension reciprocation plan to access up to 50 per cent of your pension fund before age 55 in May last year.
In June, MM revealed that The Pensions Regulator had appointed Dalriada Trustees to seize control of the bank accounts of six schemes used for pension reciprocation.
Dalriada wrote to around 500 members of the schemes warning they could be forced to return loans obtained using the “maximising pension value arrangements”. MPVAs are used to allow investors to access up to 50 per cent of the value of their pension pot before age 55.
A High Court judge subsequently froze £1m of fees charged to members the plans, which were administered by Ark Business Consulting and two related entities.
In December, the High Court ruled the arrangements are unlawful although the trustees of the schemes have launched an appeal against the decision. However, Dalriada has warned investors that significant losses are “inevitable”.
The Pensions Regulator says £27.1m has been transferred into the six schemes, with £9.1m paid out in loans to members.
Pensions minister Steve Webb (pictured) says: “I am very concerned that people will end up poorer in retirement as a result of these dodgy deals.
“I have previously warned against the risks of enhanced transfer values and I hope people listen to these new warnings and think twice before making a decision they could later regret.”