Pension fraud and how to avoid it
When City of London police swooped on a seven-strong gang of criminals who were ripping off customers, it marked the start of a much-needed clampdown on so-called 'pension liberators'.
The raid, on 8 May 2013, was part of a wider government initiative against pension liberation activity, with the authorities claiming that thousands of people have been targeted in this way, losing an estimated £400 million as a result.
Only in rare cases can people release funds from a pension before the age of 55; for example, if they are suffering from a terminal illness. But fraudsters promise to transfer victims' pension savings to an arrangement that will allow them to access their funds early. In almost all cases, people's pension pots are switched into high-risk or non-existent investment schemes, many of which are based overseas.
In return, criminals routinely take half of a pension pot in charges, while victims will also owe tax to HM Revenue & Customs (HMRC). Some individuals have lost as much as £1 million.
It can decimate someone's future retirement income and forces many to work into old age. Pension liberation is, simply put, ruining people's lives.
But the practice is becoming far more widespread in the wake of the recession, as people become desperate for cash following redundancy or escalating debt problems. The Information Commissioner's Office, which regulates marketing calls and text messages, has seen reports of spam text messages related to reclaiming pensions more than triple in the past six months.
Incredibly, one in eight spam messages sent is thought to relate to pensions.
Thankfully, the government has finally done the right thing by setting up a taskforce to tackle the problem, with a whole heap of agencies involved, including the Pensions Regulator and the Financial Conduct Authority.
If the new taskforce and clampdown on pension fraud has done anything, it has told us how important pensions are or, more importantly, how serious the current government is about pensions. David Cameron, George Osborne et al do not seriously want people living on the breadline into old age – they would much rather people funded their retirement themselves.
As more people live longer, they need bigger pension pots, not smaller ones - it's clear that no one can rely on the state to support a comfortable retirement anymore.
You can see just how much you'll receive from the government when you retire here, but hopefully the state will be merely topping up what you have already saved into your own pension.
I don't always agree with MPs, but I'm with pensions minister Steve Webb when he says: "If you are offered a deal to unlock your pension, don't touch it." I'd add that anyone targeted in this way should immediately report it to the authorities.
If you do get into trouble financially, don't think pension liberation is the right way to help – and don't bury your head in the sand, either. It's much better to cut back on spending, pay off your debts (high-priority debt first) and get into a savings habit. You can always seek free help and advice from Citizens Advice if you're worried.
Once you've righted the ship, you'll be able to sail to a healthier financial future.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.