Jenna Towler investigates the opaque world of pension liberation and loans.
Money worries often top the list of people’s biggest concerns. Surveys of older working people often specifically put lack of money in retirement as their biggest fear.
So, what would you do if you were offered the chance to access your pension savings before the age of 55? Would you be interested in that national newspaper advert or the website you discovered that offered: “A cash loan from your pension. Fast payments, with no upfront fees.”
The answer, if you are reading a journal such as this, is probably not.
Trustees and schemes managers are more than likely aware of the danger of such pension liberation or pension loan schemes, but many ordinary pension scheme members may not be.
The Pensions Regulator, Financial Services Authority and HM Revenue & Customs say there has been a huge increase in people under the age of 55 going down this path, with terrible financial and personal consequences.
One member the regulator has been dealing with has been left suicidal after finding out he will have to repay his pension loan – which he has already spent repaying crippling personal debts. Another couple were “left in a state of shock at what has happened to their pension fund” after agreeing to liberation, it says.
Investigations by the agencies show cash released through pension liberation or loans increased from under £25m at the start of 2010 to nearly £200m at the end of 2011 – driven by opportunistic ‘businesses’ and the desperation of members in the economic downturn.
These liberation deals and pension loans offer members – who are often strapped for cash and targeted with cold calls – the chance to take out a substantial loan from their pension pot, giving them immediate access to tax-free cash.
The rest of the transfer value is then transferred into “highly risky or opaque investment structures” for periods of up to 20 years– with no guarantee the member will ever see it again. The structures are also usually subject to massive fees.
TPR case team leader Victoria Holmes says: “If the offer sounds too good to be true, it probably is. Transferring your pension to one of these questionable investment models could result in you losing your entire pension.”
She says the ex-pat community in Spain is being heavily targeted by these operations, as well as people who have recently been made bankrupt.
The People's Pension, Atlas Master Trust and The Cheviot Trust have been granted authorisation from The Pensions Regulator (TPR), taking the total number of authorised master trusts to 18.
Pension schemes have been warned they may now face a more challenging legal test if they wish to fix drafting errors.
The Greene King Pension Scheme has appointed XPS Pensions as its actuarial and investment adviser following a competitive tender process.
Professional Pensions has compiled a list charting the progress of master trust authorisation. View our list in full here...