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By Donia O'Loughlin | Published Jul 31, 2012

HMRC warning over pension schemes’ offer to ‘unlock’ pension

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HMRC has issued a fresh warning over schemes that claim to be able to ‘unlock’ individuals’ pension savings, after concern was raised over two websites marketing offers to provide early access to accrued funds.

FTAdviser was alerted by a worried consumer to two pension reciprocation websites: http://ukpensioncash.com and http://pensionunlockers.com.

The websites do not have any contact details and do not provide any information on the company or companies that own them. Both websites ask consumers to fill in an enquiry form to get a call back.

FTAdviser tried to make contact but received no response from either website.

UKpensioncash says that up to 50 per cent of an individual’s pension can be released in a cash lump sum, at any age, including before retirement.

Pensionunlockers states it will will give an immediate decision to possible pension release and states that if an individual qualifies for pension release they can release up to the maximum tax-free cash allowed.

The website gives no detail on the amount that can be released or at what age.

A spokesperson for HM Revenue & Customs warned against use of such schemes, telling FTAdviser: “Investors should stay well away from pension offers that claim to be able to provide loans or release tax-free cash from people’s pension pots before they reach age 55.

“The arrangements are often advertised as loan arrangements without any need for credit checks or security. Investors should be aware that, where funds are extracted in this way, scheme members are likely to suffer substantial tax charges.”

The spokesperson said the total tax charge on an unathorised payment can amount to 70 per cent.

John Lawson, head of pensions policy at Standard Life, also warned against such plans, warning that if 50 per cent is unlocked, the interest will be rolled up and it is unlikely there will be any funds left in the pension upon retirement.

Mr Lawson told FTAdviser that such schemes often work by setting up two pension schemes which invest in each other, meaning “effectively you are getting the money from someone else’s pension and vice versa”.

He said: “There will be a very high rate of interest on that and the interest will be rolled up and may almost certainly cancel out the other half, so when you come to retire you don’t have anything at all.”

The Pensions Regulator declined to comment but earlier this year it warned that individuals face risks when websites or salespeople offer them the chance to cash in their pension pot tax-free before retirement.

The regulator warned investors that if something sounds too good to be true then “it invariably is”.

The pensions watchdog also secured a High Court ruling on 16 December that so-called ‘pension reciprocation plan’ arrangements contravene pension law.

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