People who have fallen prey to cruel 'pension liberation scams' have often already lost their entire life savings to crooks. However, things are set to get even worse for them in the next few weeks, as they will receive letters from HMRC, demanding 55% tax on the cash they have lost.
The horror has been revealed by Angela Brooks of ACA Pension Life - set up to help victims of these scams. She explains "There are tens of thousands of people across the UK and abroad who were told by conmen using sophisticated tactics that they could access their British pensions tax-free thanks to a legal loophole. This is not, and has never been, the case."
Victims are persuaded to transfer their pensions to a separate scheme, and are told it will mean they can access the money before the age of 55. She said often these scams will claim to exploit a 'legal loophole' - but there is no such loophole. They also tend to suggest this is a scheme for 'sophisticated investors' like yourself. This, she highlights is pure flattery to win you round. Finally, they will offer the service for free - when it is in fact often ruinous.
In most cases, the pension will be transferred into a worthless scheme - investing in assets with no value. HMRC will also see that the cash has been transferred out of the pension early, so they will issue a tax demand of 55% of what was in the pot.
She says people have often been left with nothing - and in many cases have built up horrible debts. The tax demand will be the final and cruelest blow, adding: "This is the horrific fate that awaits many. It will ruin lives."
What can you do?
Pension Life is pursuing 16 class action suits against pension companies that released funds to well-known pension liberation scams. It also refers cases to the Pensions Ombudsman, and appeals against tax demands from HMRC. If you have fallen prey to the scammers, it may be worth approaching an organisation like this to see if they can help.
However, the best approach is to protect yourself from these scams in the first place. The first step is to understand the rules. Pension freedoms mean you have the ability to take money from your pension from the age of 55, but there is never any chance of taking a penny before this age, without falling prey to significant tax charge. If any scheme says it can, it's a scam.
Even if you take your cash after the age of 55, after the first 25% you will pay tax at your marginal rate, so this is not tax free.
If you have any doubt over what is and isn't allowed, it's essential to take advice from an independent financial adviser, or gather information from the likes of Pensions Wise, so you aren't led astray by the scammers.