Pensions liberation means the early access to some or all of an individual’s pension money before age 55 where such access would not normally be granted. Individuals are often financially vulnerable and are encouraged to transfer into schemes that may be illegal or that invest in high risk investments. They are often misled about the consequences of accessing their pensions early.

The Pensions Regulator (tPR), HMRC and various other government bodies have joined forces to combat the effects of pension liberation fraud. The “Project Scorpion” campaign aims to encourage trustees and pension providers to raise awareness of the issue amongst their members and to be alert to transfer requests to potentially fraudulent liberation schemes, while “Project Bloom” aims to prevent liberation. Thousands of people are estimated to have released up to £400m into high risk and non-existent investment schemes since 2008 and this amount continues to grow significantly by the day.

A number of schemes and individuals are now under scrutiny and seeking specialist legal advice. Raids have occurred across the UK where tPR, Police and HMRC have been investigating such operations. During May, detectives from the National Lead Force for fraud entered a City of London based office housing up to 40 call-operatives, arresting three staff and seizing computers and materials. At the same time, further arrests were made in Ayr, Glasgow and Cheshire.

Features of pensions liberation

A pensions liberation scheme often initially appears to be a conventional occupational or personal pension scheme that is registered with HMRC and is therefore authorised to receive transfer values in from other schemes. The value of transfers being paid across are generally on the lower side – a typical transfer tends to be no more than £30,000 to £40,000. Transfer values can however be as low as only a few thousand pounds.

Liberation can occur without the knowledge of the scheme trustees and/or other professionals involved, and will typically take one of the following forms:

  1. Loans offered to a member, usually on the basis that tax free cash taken later will settle the loan.  Liquidity for the loan is not usually achieved directly and is more likely to be financed by the scheme using the transfer value to purchase a high proportion of “preference shares” and then that company providing liquidity to a “third party” loan company or drawing up a private agreement between itself and the members. The scheme trustees often have no involvement and may be completely unaware that this is taking place. There may be consequent low or very artificial repayment methods attached to the loans, however because members may not be fully informed of the repayment arrangements, they will not be aware if the terms are penal.
  2. The introducer receives commission from the scheme upon completion and payment of the transfer value in, some of which is passed back to the member. The commission amount paid to the introducer can vary greatly but can be up to 30%.  This is viewed as early access and consequently liberation.
  3. The scheme takes the direct approach and simply pays cash across to the members at an unauthorised age.

Commissions charged by liberation schemes tend to be high, typically 10 – 30% of the value of the pension. Sometimes the member is aware of these fees (because they have been promised a rebate as in (2) above); other times these fees are not disclosed.

An increasing number of companies are targeting individuals through websites, cold calls or mass texting, claiming that they can help them take their pension early. Any unsolicited approach should be viewed with suspicion. Members may have been informed that there is a legal loophole that allows them to access their pension before age 55. There are however very limited exceptions that do allow access before age 55, which include terminal illness where there is medical evidence that the member’s life expectancy is less than one year.

Those operating this type of scheme are generally unregulated by the FCA and the investments selected are often in the “unregulated space”. Not all schemes with investments in the unregulated space are offering liberation, but there is a perception that this area of the market has an increased risk of liberation being permitted.

Pension unlocking should not be confused with pension liberation. Pension unlocking, which is authorised by HMRC, refers to releasing up to 25% of a pension as a tax free lump sum. This can be taken only when the pension comes into payment and not before.

Consequences of liberation

Individuals targeted by liberation schemes are often not warned of the consequences and may end up being significantly worse off in retirement than they would otherwise have been.

This is because members are misled about key consequences of entering into one of these arrangements. This could be because they are not informed of the tax consequences, the fees involved or how the remainder of their pension savings are invested i.e. the investment of the individual’s remaining funds may not meet the legal requirements for pension investments and/or may be very high risk. Many investments are abroad, often in land such as palm oil plantations or forestry and may not be covered by the Financial Services Compensation Scheme, so there is often no recourse for members if the money is “lost”.

Early cash is highly likely to result in serious tax consequences for the member, which can include tax charges of around 55% of the overall value of the pension liberated, penalties and interest. These tax charges will be payable on the full value of the pension liberated, including any amount deducted during the transfer for “administration” and any commissions paid.

Those found to be running pensions liberation schemes may be convicted of offences including fraud, money laundering and related offences. They are likely to also be barred from acting as trustee to other registered pension schemes and may be disqualified as company directors.

Pension transfers and the Trustee’s role

Members should ensure that they take appropriate financial advice before considering any pension transfer and should be aware of the potential for charges being imposed by HMRC, regardless of what an introducer may tell them. They should also consider taking unbiased advice from an independent financial adviser (IFA) who is not associated with the proposal they have received and should seek legal advice.

Trustees are under a legal duty to transfer a pension where they receive a valid transfer request and where the receiving scheme meets the relevant statutory requirements. Failure to give effect to a transfer request can result in fines imposed by tPR up to £5,000 for each individual trustee and up to £50,000 for corporate trustees.

TPR has however indicated that where trustees of the transferring scheme have evidence that the proposed receiving scheme may be a liberation scheme, this will be taken into account in deciding whether or not to impose the fine. It is therefore vital that trustees retain any evidence they may have if they are suspicious and delay or refuse a transfer. They should also contact the relevant member to raise their concerns with them directly and to alert them of the potential risks. Some members may be completely unaware that the scheme they wish to transfer into is a liberation scheme, however others may be seeking early access for financial reasons.

Trustees should also seek legal advice where they are concerned about the nature of a potential transfer.

Due diligence

Warning signs that trustees and pension providers should be aware of include:

  • Investments that are mainly in the unregulated space, or where there is no apparent diversification of investments.
  • All or part of the funds are being transferred abroad.
  • Requests to transfer to a scheme that is not registered with HMRC or is only newly registered.
  • Requests to transfer to a scheme with an employer that does not exist, is not trading or has only newly been established.
  • Low transfer values.
  • Disproportionate commissions or administration/transfer fees.
  • Members being approached unsolicited.
  • Members being under time pressure to complete the transfer.
  • Members not knowing much about the receiving scheme and having no connection with it.
  • Several requests being received in a relatively short space of time to transfer funds to a previously unknown scheme.

Trustees should be cautious in cases where members are set on making a particular (unknown) investment, and should conduct due diligence into schemes, employers and introducers offering investments of this kind. Trustees must always carry out due diligence on any proposed investments to satisfy themselves that the investments are genuine.

Where trustees or pension providers have concerns, they should make further enquiries about the receiving scheme, the employer connected with that scheme and the scheme’s trustees. It would also be advisable to contact tPR to find out whether that scheme currently is being investigated. There is also a list of prohibited trustees on tPR’s website, as well as a list of schemes against which tPR has issued a determination notice. While tPR cannot direct the trustees not to make a transfer, such efforts will go towards mitigating the risk of the trustees being fined for refusing to effect it.

Where trustees use a third party administrator, they should liaise with the administrator to find out what checks will be carried out on receipt of a transfer request and to agree a process to report concerns to the trustees.


There are concerns that Project Scorpion places too much responsibility on trustees and pension providers, without sufficient support from tPR or HMRC. TPR in particular has been criticised for refusing to sanction a transfer request refusal, leaving trustees in a precarious position and facing potentially large fines.

There is also criticism that the process by which schemes are registered is not rigorous enough to prevent the influx of liberation schemes, although HMRC is reported to be poised to de-register up to 500 schemes suspected of facilitating pensions liberation. The Department for Work and Pensions is also reported to be considering legislative changes in an effort to reduce the prevalence of liberation.

Courtesy of Fraud Intelligence