deVere Group champions HMRC’s warnings against pension-busting schemes

By David Matthews

Nigel Green, chief executive of the world’s largest independent financial advisory consultancy, the deVere Group, is one of the leading voices supporting HMRC’s latest warnings about schemes which promise to ‘unlock’ up to 50 per cent of an individual’s pension.

Here, Mr Green speaks exclusively to Global Banking and Finance Review.

What warnings have HM Revenue & Customs issued and why have they raised them now?

HM Revenue & Customs is, in fact, reiterating previous warnings that it’s issued to avoid ‘pension-unlocking’ schemes, which offer investors the possibility of taking enormous, tax-free sums before retirement.  But the fresh calls come as HMRC reveals it is working with the Serious Fraud Office (SFO) on a case “now in the public domain” about so-called ‘pension liberation.’

The Revenue’s statement said “Pension scheme members had entered into arrangements with a promise of return on investment using money from their pension savings; this has not materialised.”

Why is the deVere Group publicly championing such warnings?

The deVere Group has long been warning against these ‘pension-busting’ schemes as we believe they risk impoverishing people in retirement – so to encourage people to tale up such schemes would be to give wholly bad financial planning advice.

The charges on unauthorised payments can easily escalate to a shocking 70 per cent, meaning there will be very little, if anything, left in your pension pot when you come to retire.

Sadly, schemes of this sort have been marketed to those who, mostly through no fault of their own, have not fully understood that they could be putting a significant proportion of their retirement savings at risk.

Therefore, investors should steer clear of schemes which promote withdrawing vast sums of capital out of their pensions before they reach the age of 55.

Besides being against the fundamentals of financial planning, why else should these types of schemes be avoided?

Another major reason to steer clear is that there is a very real possibility that HMRC will, ultimately, declare such transactions void as they are in direct conflict with the spirit of what a pension is intended to do – and that is provide an income in retirement.

As such, the deVere Group would never recommend these types of schemes to our clients as they could eventually be prohibited from the UK tax authority.

In our experience, a high number of these so-called ‘unlocking’ schemes are pushing the limits of what is legal – and what is beneficial to the client.  Typically, many of the organisations who market these products are fully not and appropriately regulated, so unlocking or reciprocation propositions should be viewed with a good deal of caution.

How many people are believed to have been ‘caught out’ by these pension-busting schemes?

There is no official data, but even if there was just one person who is now poverty stricken in retirement because of this, that is one too many!

Nowadays, due to annuity rates plummeting to all-time lows, soaring living costs, low interest rates, the scrapping of age-related benefits, plus the fact we’re living longer so our savings have to last longer, being financially comfortable retirement isn’t as easy as it was a generation ago.

That’s why, according to all the independent research, those who seek professional financial advice are the ones who are far more likely to be financially secure in retirement.

There are many ways that retirees, and retirees of the future, can maximise and safeguard their retirement income.  The most effective starting point on the road to financial freedom is to arrange a meeting with an experienced, expert financial adviser who can tailor-make a plan with you to achieve, and hopefully exceed, your financial aims.