It has been a year since the Pensions Regulator spearheaded a campaign to highlight the issue of pension liberation fraud. During 2013  the multi-agency task force Project Bloom launched dawn raids against suspected pension liberation  fraudsters and the High Court issued its latest judgment on pension liberation schemes. In February  2014 a new Pension Liberation Industry Group was launched and a new industry Code of Practice is expected later this year. So what, if anything, has changed?

What is pension liberation?

Pension liberation is an arrangement whereby pension scheme members can access (or “liberate”) pension savings before their normal minimum pension age, which is generally age 55. This is done by transferring pension savings to specially created schemes used as vehicles for  the liberation – some cash is released and given to the member, the remainder is then invested,  often in dubious arrangements.

Accessing pension funds before a member’s normal minimum pension age is not strictly illegal  providing the rules relating to transfer requests are adhered to. However, transfers to pension  liberation schemes can have serious financial and tax consequences for the member.

How do members suffer?

Those administering pension liberation schemes act illegally where they fail to inform or mislead the member as to the consequences that may arise once the member’s pension is liberated. These  consequences can include: 

  • Huge tax bills – members who liberate their pension savings may face potential tax charges of 55% of the funds released if the  payment is considered to be “unauthorised” under the Finance Act 2004.
  • Penalties – if the member does not tell HMRC about the payment, HMRC may impose fines on the member and charge interest on any  unpaid tax bill.
  • High arrangement fees – pension liberation schemes can charge arrangement fees or commission of  30% of the savings released. Members are often not told about these fees up front.
  • Erosion of savings – if a member has accessed his or her pension early, he or she is likely to  face decreased income after retirement. Often only a proportion of the pension savings are released  by the pension liberation scheme, with the balance being invested in highly questionable or illegal  investments, or held in  illegal schemes which dispose of the cash.

So what’s new?

Pension liberation schemes have been in existence for many years and fears regarding pension  liberation fraud are not new. However, there has been a huge reported increase in the existence of  pension liberation schemes and the solicitation of pension scheme members by way of aggressive  marketing techniques. In October 2013 Pensions Minister Steve Webb confirmed that £420m of pension  savings had been transferred to liberation schemes to date. In 

response, we have seen a number of moves to regulate the sector as a means of combating pension liberation fraud:

  • High Court decision in Pi Consulting (Trustee Services) Ltd v The Pensions Regulator (and Others)  [2013] –the decision held that nine pension liberation schemes were “occupational pension schemes”  within the meaning of section 1(1) of the Pension Schemes Act 1993. The schemes therefore fall  under the jurisdiction of the Pensions Regulator and are subject to the Regulator’s powers.
  • HMRC - introduced new changes in its processes aimed at combating pension liberation fraud by  making it more difficult for suspect vehicles to be registered pension schemes. HMRC now conducts  more robust investigations into applications for registration from new schemes.

I am a trustee or scheme administrator, what should I do? Despite these regulatory initiatives, the onus remains on scheme administrators and trustees to  help prevent pension liberation fraud from occurring. Administrators and trustees, when faced with  a member’s transfer request, should consider whether there are any signs that pension liberation  fraud is occurring. Such as:

  • the member seeking to access pension savings before age 55;
  • a sense of urgency from the member for the request to be processed;
  • receiving schemes being involved in multiple transfer requests;
  • receiving schemes being only recently registered with HMRC;
  • the member’s information about the transfer being incorrect or incomplete; and
  • the member receiving an unsolicited approach to transfer.

There is nothing a trustee can do to legally refuse a valid transfer request and delay in  processing a valid request may amount to maladministration. Trustees and scheme administrators  should take timely steps to satisfy themselves that the receiving scheme is a legitimate  arrangement and that the member has not been the victim of fraud. It may be appropriate to ask  members whether they are sure they want to go ahead with the transfer and direct them to sources of  free and independent advice (see below). Suspicions that a receiving scheme may be acting illegally  should be reported to the Pensions Regulator and HMRC.

I am an employer, what can I do?

Pension scheme members should be advised to take independent financial advice before submitting a  transfer request so that they are aware of the dangers and the consequences. Members should be  pointed towards various sources of free information and guidance, such as the Pensions Regulator  (who has published a pension liberation fraud awareness leaflet) and the Pensions Advisory Service.  Employers should take notice if their employees are being approached by unsolicited third parties  offering to release pension savings early. This can take place by way of email/spam adverts, text messages and phone calls. Suspicions should be reported to the  Pensions Regulator.


Despite recent regulatory initiatives, further clarity is still required, particularly in light of  pension liberation schemes operating in an increasingly sophisticated manner and the signs of fraud  being more difficult to identify. Trustees must meet a member’s right to a transfer value, whilst  being on the lookout for signs of fraud. Further guidance is expected from the Pensions Ombudsman  who is currently dealing with around 41 pension liberation complaints.