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Accountants call for pensions liberation ban

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19th Aug 2013
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Pensions liberation may sound like an unlikely revolutionary political movement but in fact it’s the phrase used for schemes which supposedly allow people to access their pension saving before retirement.

As the ICAEW notes, a better name would be “pensions extraction” or even “pensions devastation.”

The normal rule is that you cannot access pension savings before you reach the age of 55 or in some cases even later. The so-called “liberation” schemes try to get round this age threshold, but the costs are high.

Pensions experts at the ICAEW have advised the following:

  • The money taken from the pension fund and paid to the individual will be an ‘unauthorised payment’
  • It will be subject to a one-off tax penalty of 40% (s208, FA 2004), plus a further 15% if more than 25% is taken from the scheme, thus giving an aggregate tax charge of 55% (ss209-212, FA 2004)
  • This 55% tax charge is not reduced because the individual did not understand the implications of what he (or she) was doing – in other words, there is no ‘motive’ test
  • The provider usually makes hefty charges, sometimes up to 20%
  • HMRC may de-register the scheme, which can trigger a further charge of 40% (s158, FA 2004)
  • The Pensions Regulator may intervene to replace the trustees of the ‘liberation’ arrangement

Anyone thinking of moving their pension to a liberation scheme is likely to be left with only a small fraction of the original pension savings, according to the ICAEW. 

Simon Fox, managing partner of Carpenter Box Wealth Management, which is owned by chartered accountants Carpenter Box, said pension liberation schemes should be made illegal.

“Savers who are persuaded to transfer their pensions into such schemes face losing more than half of their savings in tax penalties and there are usually far more cost effective ways in which we can help individuals to increase their income.”

HMRC wants people to be contact it about liberation schemes (Action Fraud on 0300 123 2040). People can also call the pensions helpline on 0845 600 2622.

The Pension Regulator has published Pension Liberation Fraud which provides more background information and also contains some very good, clear, examples.

HMRC also has advice and examples Pension liberation - the cost of accessing or unlocking your pension early.

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