Member Article

Tax specialist warns of pension pitfalls

Those thinking of converting their retirement savings using Pension Liberation Schemes are being warned of the pitfalls that could lead to a loss of thousands.

That’s according to Paul Hyland, tax partner and pensions specialist, at Liverpool-based Duncan Sheard Glass (DSG), who has reported a significant increase in the issue.

Typically, pension savings can’t be accessed before the age of 55 or, in some cases, later. The schemes, also known as ‘pension loans’ and ‘pension scams’, work around age restrictions to enable access to funds, but often at a huge cost.

Hyland said: “On face value, pension liberation schemes offer an attractive, ‘quick-fix’ way to access savings. They allow retirement funds to be transferred to a second scheme and enable access to some or all of the money in the form of a loan.

“There may well be some arrangements that are legitimate, but we’ve seen a large amount of cases in which they haven’t been, leaving a large number of people in a huge amount of debt.

Hyland uses the example of a pension liberation scheme worth £60,000. He says the liberator might offer to loan the tax payer only £48,000 of their savings, though in many cases, the pension is then shipped offshore and the remaining £12,000 would be charged back to the liberator.

He added: “But in finding out about the arrangements, the HM Revenue & Customs are in a position to apply tax to the individual at a rate of 55 per cent on the whole value of the scheme. In this particular example, this would total around £33,000.

“This would effectively leave the tax payer with only around £15,000, and taking in to consideration the inevitable late payment interest charged by the HMRC, I would be surprised if they would be left with any more than £10,000.”

Hyland admits that it’s a massively complex issue and one that can unfortunately take a few years for the problems to come to light.

He said: “What’s concerning is that, as we remain in a time of uncertainty and many people look to opportunities to gain quick access to money, the problem could continue well in to the future.

“Liberation firms will often approach people by cold-calls, texts or emails, so I encourage people to be vigilant of any unusual activity.

“I urge those who are considering one of these schemes, or have signed up to one in the past, to seek advice from a professional accountant to fully understand the financial implications. Alternatively, contact the HMRC Action Fraud hotline.”

DSG provides a range of tax, audit, investments and pension advice, with offices in Liverpool and Southport, as well as North Wales.

This was posted in Bdaily's Members' News section by Simon Malia .