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Public warned over pensions scheme

BBC News, May 3 , 2002

Harriet Maunsell

Harriett Maunsell, the occupational pensions regulator, has issued an official warning

The Occupational Pensions Regulator (Opra) has issued a formal warning against "pension liberation" schemes.

If you get involved in this kind of scheme you are taking a high risk with your pension benefits - the rewards are questionable to say the least, and the organisers are likely to be unscrupulous

 

Harriet Maunsell, chairman of Opra

Harriet Maunsell, chairman of Opra, issued an official warning to members of the public on Friday.

Pension liberation schemes, are sometimes referred to as "trust busting" and they claim to convert a pension into a tax-free lump sum.

The Inland Revenue is currently investigating as many as seven schemes.

 

Suspect schemes

"Liberation schemes" are attracting people through adverts and door-to-door salesman.

They are very attractive to people who urgently need cash, as the companies turn pension benefits into a tax-free lump sum.

The company offering the service usually charges high commissions ranging from 20% to 30% of the individual's total fund.

Transactions are often arranged using offshore companies and bank accounts.

Typically, the individual's existing pension scheme will receive a request from the pension liberator to transfer their pension money to a scheme in the name of a fictitious new employer created solely for the purpose of trust busting.

 

Losing out

By participating in these schemes, people could lose up to 70% of their pension after tax and charges, Ms Maunsell warned.

Under Inland Revenue rules you can not take your pension until you are at least 50 years old.

Tax is also payable on pension benefits - and drawing down such a lump sum could make people liable for higher rate tax at 40%.

In addition, only 25% can be taken as a lump sum on retirement. There are also issues over the fees that the schemes have been charging.

Harriet Maunsell warned consumers: "If you get involved in this kind of scheme you are taking a high risk with your pension benefits - the rewards are questionable to say the least, and the organisers are likely to be unscrupulous."

 

 


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