Personal Pension  

FCA: Authorised advisers not involved in unlocking

There is “very little” evidence to suggest any authorised financial advisers have been promoting or arranging early pension release schemes, known as pensions ‘unlocking’ or ‘liberation’ schemes, according to the Financial Conduct Authority.

In an updated warning to consumers on its website, the FCA advised customers to question any adviser that recommends a pension release scheme, asking them to explain the “full consequences and risks involved”.

It added, however, that it it has seen “very little” to suggest “firms or advisers promoting and arranging early pension release schemes are authorised... even when they have said they are”.

Article continues after advert

The FCA said it therefore “strongly advises people to only deal with regulated financial services companies”.

The warning also explains the potential cost of entering into an unlocking arrangement, with HM Revenue and Customs charges of up to 70 per cent and transfer fees for the arranging firm of “up to 30 per cent” meaning a fund could be completely wiped out.

The FCA said the “minimum tax charge” HMRC will levy is 55 per cent. It detailed a case study where a client accessed their £150,000 pension and only walked away with £52,500, after facing an £82,500 HMRC tax bill and paying a £15,000 fee to the unlocking firm.

It said consumers would have to pay at least the 55 per cent tax charge irrespective of whether they did not understand they had broken tax rules, had offered to put the money back in the pension, had paid fees or charges, or if all the pension money had been spent.

If an individual does not tell HMRC, the tax penalty can increase to 70 per cent. The FCA added that transfer fees and the fee to the company for unlocking your pension could be up to 30 per cent.

Any funds remaining in the pension scheme after fees and tax are paid should be reinvested, with many schemes putting the capital into high-risk products or projects like overseas property developments, or “sometimes outright stolen”.

The FCA said: “If an adviser authorised by us promotes an early pension release scheme ask them to explain the full consequences and risks involved, and your other options.

“These schemes can be illegal if you are not told, or are misled, about the tax consequences and risks of entering into one.”