The Financial Services Authority (FSA) is warning people to be aware of the increase in pension release scams. The FSA said: “We are concerned that people may only see the instant financial gain rather than the severe future losses they could experience when they retire.”
The scam works by cold-callers ringing up people offering them a pension transfer scheme, claiming that transferring their pension into an alternative plan will save them money. Often they will advise transferring the pension to an overseas plan to escape paying UK tax, or selling the pension to raise revenue. 
Presently, only people aged 55 and over can take money from their pension funds however, there are some schemes that allow you to borrow money from your pension. The issue with such schemes is that most people will lose money in the long-term.
The FSA warns that: “There’s a possibility that these deals are a complete scam and you will lose your entire pension. In addition to that loss, you will have to pay tax, penalties and charges to HMRC.”
Another issue is salespeople ‘churning’ pensions by moving pensions to other suppliers and pocketing huge fees for doing so, with some people’s pension shrinking by 20% or more because of the switch.
The FSA warn that those who choose to take money out of their pension fund early will be liable to tax charges, because the transaction will be seen as an unauthorised payment. These charges could be up to 55% of the value of the payment for the holder of the pension and at least 15% of the payment will be charged to the scheme administrator. Additional penalties fees will also most likely be applied.
Moving your pension to an overseas provider will mean that your pension is not protected by the UK financial authorities, should anything go wrong in the future your money will be lost with no hope of any compensation.
The FSA’s website offers information of all registered financial firms in the UK, to check that a company is on the register go to www.fsa.gov.uk/pages/register/ They also have a hotline that you can call if you suspect you’ve been a victim of a pension transfer scam – 0845 606 1234.
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