`pension liberation fraud`?

Webinar: Pension liberation fraud

Victoria Holmes and Mike Broomfield The Pensions Regulator 20th March 2013

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What is ‘pension liberation fraud’? •

Process by which people release their pension funds before retirement or age 55 and convert them into cash. This is not the same as pension unlocking.

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Where pension liberation can be fraudulent is where there is release of pension monies to the member before they are entitled to receive this and there is evidence of members being misled about the possible tax consequences of making such a transfer and.

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There may be instances where a member has been, for example, informed as to the tax charges and has decided to go ahead and make the transfer anyway; the member has not been deceived and so there would be no criminality associated with this but they would still be ‘liberating’ their pension.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

What is ‘pension liberation fraud’? •

In order for a pension to be ‘liberated’ a member first has to request a transfer from their deferred occupational pension scheme.

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The money is then transferred into a new ‘pension scheme’ and as part of the arrangement cash is paid back to the member.

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Payments are sometimes structured as loans under which the member is required to repay the funds which have been advanced.

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The member has to transfer to a new specified pension arrangement and then receives a loan. These loans are given without credit checks or security.

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Often marketed through text messages, websites, adverts in newspapers and cold calls.

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Money is often transferred into highly questionable investment structures which are frequently based overseas – we have been alerted to attempted fund transfers and investments in highly questionable overseas property.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Why would individuals do this? •

Why sign up to these offers?

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Economic downturn and job losses – more people are seeking to access money quickly. – The immediacy of receiving cash is appealing – repaying debts, paying off mortgage, money for medical procedures, money to support self-employment etc.

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Who signs up to these offers?

– No trend towards particular regional area or age - broad spread. However, in the current economic climate, many people are desperate to access money quickly. – Some people have been targeted through bankruptcy lists.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

What are the consequences? Consequences can be serious for members: – a member may be hit by unexpectedly high fees – a member may incur significant tax charges – a member will be poorer in retirement.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Increase in liberation activity •

Known liberated funds through recent investigations rose from under £25m at the start of 2010 to nearly £200m by the end of 2011 Liberation Activity

Known quatities liberated

£250,000,000

£200,000,000

£150,000,000

£100,000,000

£50,000,000

£0 2008

2009

2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Date

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The amount that has been ‘liberated’ from pension schemes in this way is known to run into the hundreds of millions of pounds, with perhaps tens of thousands of members affected.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Tax charges •

HMRC want to help ensure that individuals with pension funds are protected so that those funds are available to provide an income for the individual later in their life.

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HMRC is concerned that individuals accessing their funds early are not being made aware of the potential charges from the organisers.

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Payments that are not authorised are also subject to various tax charges designed to ensure that all tax reliefs previously given are recovered.

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The legislation sets out a minimum pension age when pension funds can normally be accessed.

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Currently this is normally age 55, although in restricted circumstances payments can be made before this age - such as ill-health.

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By the time a person reaches retirement it is possible that more than half of their pension fund will be made up of tax relief.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Consequences for members •

Male in late 40s Transfer in: £71,000 Arrangement paid: £35,000

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This member had been paying regular amounts into his pension fund for over 30 years and had managed to build up a substantial sum.

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Had always planned to take the 25% cash sum at age 50 but the legal age was then changed to 55.

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Began looking on the internet for a “pension loan”. This was where he came across the concept of the Pension Reciprocation Plan.

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Brochures made available to him and no warnings about these types of schemes flagged. Was assured that the receiving Scheme was legitimate and within HMRC guidelines.

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Went with the arrangement to repay huge overdraft and other debts.

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This member feels very frustrated as he now realises that he could have taken a lump sum legitimately from his pension in the not too distant future.

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He is very distressed regarding the repayment of monies as he states that of the amount he has received there is little left and he still has debts of over £20,000, plus a negative equity and a slight overdraft.

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He has no family and is suicidal.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Consequences for members •

Couple in early 40s Transfer in: £63,000 and £26,200 Arrangement paid: £30,000 and £0

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First came across the Pension Reciprocation Plan concept through an advert in a national newspaper.

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Called the telephone number supplied and were put through to an advisor. They described how they were struggling to pay bills and how the arrangement amount received has since been used to pay back debts that they had built up during a period when they both unfortunately had lost their jobs a few years ago.

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They confirm that their financial situation today isn’t any better.

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Their home had to be sold to help pay debts and they now live in social housing.

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They are in a complete state of shock at what has happened with their pension funds and are deeply worried about paying the money back.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Regulatory action: •

The Pensions Regulator has published the initial determination notice and the compulsory review, setting out how it appointed an independent trustee with exclusive powers to six schemes operated by Ark Business Consulting.

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As a result of the appointment, the appointed trustee took control of the schemes' bank accounts.

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Central to the Ark business model was a ‘Pension Reciprocation Plan’ structure which used loans between pension schemes as a means of unlocking pension funds before retirement.

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In December, the High Court ruled that these arrangements were legally void.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Regulatory action: •

In a second case, The Pensions Regulator appointed an independent trustee to the Hollywell Enterprises Pension Scheme after concerns that a proposed £2m transfer to a bank account in Germany was an attempt to move high value pension funds overseas to Belize to be used as a vehicle for pension liberation, placing members’ benefits at high risk.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Regulatory action: •

In July 2012, Dalriada Trustees launched a High court action against three investment companies and two former trustees in a bid to recover £18m of assets invested in two alleged pension liberation schemes.

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Dalriada were appointed by TPR to take control of the two schemes – Pennines and Mendip.

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Multi Agency collaboration •

Collaboration between TPR, FSA, HMRC, Serious Fraud Office, Serious Organised Crime Agency, DWP, Action Fraud, City of London Police and the National Fraud Intelligence Bureau

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Action Fraud are the single point of contact

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Information will be passed onto the agencies above

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Transfers – critical point •

Research has shown that the point of making the transfer is the key point for preventing pension liberation fraud

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Once the transfer has occurred, member funds may be quickly lost

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In order to combat this, a series of publications have been produced: – Transfer insert for members – Information pack for members – Action pack for pension professionals executing transfers, including a checklist on what to look for and how to seek further information

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

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Insert first page of member leaflet

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission

Actions for administrators and those processing transfers •

Include the member leaflet in all transfer packs

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Direct members looking for further information to the member information leaflet, either by sending them a copy or via The Pensions Advisory Service

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Use the checklist in the professionals pack when processing transfers – if your suspicions are raised, seek further information

This presentation remains the property of The Pensions Regulator. The content of these slides should not be reproduced without express permission