OPRA WARNS AGAINST PENSION LIBERATION SCAMS

22 Jul 2004 12:15 PM

To highlight the dangers of pension liberation, the Occupational Pensions Regulatory Authority (Opra) has today published two updated guides for pension scheme members and trustees: A word of warning - don't risk losing your pension and Preventing transfers to pension liberation schemes - further guidance (Update 8).

Obtaining a cash sum for pension benefits following a transfer and contrary to Inland Revenue requirements is often known as 'pension liberation' or 'trust busting'. Pension scheme members who are below the usual earliest retirement age of 50 may be tempted to transfer their pension funds to schemes run by people offering to release the cash. However, members end up losing all their pension rights as well as much of the transferred cash lump sum through commission and income tax.

An updated version of Opra's popular leaflet A word of warning - don't risk losing your pension reminds pension scheme members of the dangers of pension liberation. Pension scheme trustees, managers and administrators should have in place appropriate controls to prevent transfers to liberation schemes.

Opra's new update - Preventing transfers to pension liberation schemes - further guidance provides a clear checklist to help trustees, their advisers, and scheme administrators identify bogus schemes. The guide sets out common features of liberation schemes, such as unusual transfer activity or suspicious scheme documents. It suggests what action trustees and administrators can take if they suspect that a requested transfer is to a liberation scheme.

Opra investigates the activities of organisers of pension liberation schemes and takes action against them to prevent further pension liberation. Recently, Opra's investigations have resulted in successful prosecutions in the courts.

Opra will be sending a copy of Preventing transfers to pension liberation schemes - further guidance (Update 8) and A word of warning - don't risk losing your pension to all occupational and personal pension schemes on the Pension Schemes Registry database. Copies are also available on Opra's website:
http://www.opra.gov.uk/mediaAndPublications/publications/Updates/index.asp Additional hard copies and requests for alternative formats are available from the Opra helpdesk on 01273 627600.

NOTES FOR EDITORS:
1. Opra is committed to playing a supportive and educational role to help increase understanding of - and compliance with - the legal duties and responsibilities involved in running of work based pension schemes.

2. In February 2003, Steven Russell and William Ferguson were sentenced to a total of five and half years in prison for offences relating to a pension liberation scam first uncovered by the Opra. Further details about this case are available on
http://www.opra.gov.uk/mediaAndPublications/pressreleases/pn03/pn03-05.asp

3. In April 2004, Anil Kumar was sentenced to four years in jail after being found guilty of a pension liberation scam that defrauded the Inland Revenue of 5.5 million. Following information received from Opra, Inland Revenue investigations led to the successful prosecution.

4. Inland Revenue rules do not normally allow pension scheme members to take any retirement benefits before age 50. The Inland Revenue has also published instructions for pension schemes on how to prevent pension scheme liberation. Inland Revenue Pensions Update 132 (http://www.inlandrevenue.gov.uk/pensionschemes/pso132.pdf ) states that before making a transfer it is the responsibility of the scheme making the transfer to satisfy itself that the proposed recipient of the transfer is a tax-advantaged pension scheme or arrangement.

5. Pension liberation should not be confused with 'pension unlocking'. This is a legitimate although potentially risky means for people aged 50 or over to take early retirement and release their pension benefits from an occupational or personal pension, as long as the legal requirements are met. The FSA have recently publicised the potential pitfalls of pensions unlocking. For more details on this visit http://www.fsa.gov.uk/pubs/public/unlock_pension.pdf

6. Opra is an independent statutory body established on 1 April 1996 by the Pensions Act 1995. It became operational on 6 April 1997. One of its aims is to look into breaches of the Pensions Act 1995 and related legislation.

7. Opra has the power to investigate schemes considered to be at risk, and aside from bringing proceedings in the courts, can prohibit or disqualify trustees and impose fines on wrongdoers. It has the power to work with other regulators in providing information where that information would enable the regulator to carry out its duties.

Occupational Pensions Regulatory Authority
Invicta House
Trafalgar Place
Brighton
BN1 4DW
helpdesk 01273 627600
email helpdesk@opra.gov.uk
website www.opra.gov.uk