Pension liberation first emerged in 2008 and between then and mid 2013, an estimated £400 million was liberated from pension funds in the UK. It is a growing issue and that figure is set to soar closer to £1 billion in 2014. Pension liberation is therefore a growing concern for scheme members, trustees and employers and has gained the close attention of the Pensions Regulator (TPR) in recent years.

TPR uses the term ‘pension liberation’ to describe any occasion when pension funds are accessed before the member reaches the age of 55 in circumstances where the member is not suffering from a terminal illness. Any transfer of this nature is almost certainly going to be categorised as an ‘unauthorized payment’, contrary to the Finance Act 2004 and sanctions include HMRC levying charges at 40% of the transfer value as well as a surcharge at an additional 15% of the transferred amount

TPR guidance suggests that pension liberation “can be illegal where members are misled about key consequences of entering into one of these arrangements”.  The FCA has described pension liberation as “a scam that operates on the very fringes of legality and morality: often beyond them”. However it is not always clear whether a crime has been committed.

Generally, the liberators attract members by telling them, in terms, that there is a ‘loop hole’ that enables the member to realise a portion of their pension pot, which could be anywhere between 10% - 50%, if they transfer their fund to the liberator. The liberator then takes a commission which can be as high as 30% and they tell the member that the remaining funds will be invested overseas, in what generally turn out to be high-risk investments. The reality, however, is that after further charges and commissions are deducted by the liberator and overseas entities, it is unlikely that there will be much left to invest on behalf of the member. Yet where a member is willing to take such risks what can, or should, trustees do if anything?

Despite the serious interest in the issue, clear guidance for trustees about how and when to authorise and refuse to authorise payments to transfer funds to suspected liberation schemes, has not been forthcoming. Guidance is currently being prepared but cannot come soon enough.