Scammers have been out in force during the unprecedented times of the coronavirus pandemic, and with many people at an uncertainty to whether their jobs are safe, many are turning to cashing in their pensions almost 20 years earlier than they should.

In 2015, pension freedoms were introduced allowing members to trade their savings for a cash lump sum. Ever since, savers and retirees have been targeted by fraudsters looking to exploit these new liberties.

In most cases clients are promised ‘cash back’ or ‘loans’ from the pension as part of the transfer process. It is commonplace for these clients to have been contacted by an unsolicited call and convinced to transfer funds into overseas schemes.

Commonly, these fraudsters are aggressive sales and marketing advisers offering cash incentives for transfers and telling their victims there are ‘legal loopholes’ to earn more money from the pension. The pandemic has also given these scammers a new lease, with a 400 per cent increase in Covid-19 related fraud already reported by the City of London Police within the space of four weeks.

In the last three months, the number of people looking to withdraw their pensions before the minimum age of 55 has soared. Pension provider, PensionBee, has stated the median age of people seeking early access to their retirement savings in March was 35.

With people at their most vulnerable due to the uncertainty of paycheques and the imminent recession, they are now even being targeted with paid adverts on Google, with a quick search of 'early pension release under 55' returning a number of sites offering to help them cash in their pension at any age.

But what happens if a person does fall victim to these scams? Are they able to claim compensation and achieve their money back? Unfortunately, in many cases even a professional solicitor cannot help gain redress.

In most cases we cannot help clients of pension liberation as they could already be subject to an 86 per cent charge on the losses with the HMRC which is a priority debt.

Even if the client is the victim and has lost all the money they saved for their retirement, they can be charged by the HMRC for the tax which should have been paid. The amount of tax is generally higher than it would have been if it were taken as income.

We have seen clients who were victims of pension liberation scams yet unwittingly assisted the transfers. We have seen cases where clients have written complaint letters and complained to the Ombudsman that ceding schemes wouldn’t release funds.

An example would be the PO-7126 Hughes vs Royal London case. Royal London tried to refuse the transfer out, The Pensions Regulator held in client’s favour that the case transfer should go through despite risks of pension liberation.

While it might seem an attractive decision when times are tough, we urge consumers to exercise extreme caution when considering online financial advice around early pension release, as it remains highly unlikely that once they have liberated their pension we can achieve success in receiving compensation.

The only possible way that a redress claim can be considered would be if a client can prove that there was an Financial Conduct Authority regulated financial adviser involved in the case from the outset, we may be able to review and consider the claim. Each case would need to be assessed on its individual merits and the consequences of the tax bill noted before a case can even be considered.

The questions remain in cases with larger losses will the client be able to sustain payments to the HMRC debt within a reasonable timescale or will the client be insolvent and face bankruptcy?

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