Could you please help. Having fallen on hard times and needing a quick cash injection to keep the mortgage paid, I enquired about transferring my £40,000ish pension over to a firm.
In return they release £6,200 to me, they take £3,800 in fees and invest the rest in an overseas property development, which is invested for 15 years and 4.2 per cent interest each year, whereupon all monies are returned to me.
I am 49 years of age. I have been warned that most of these early release firms are scams, but are they? Or is it that they are just not regulated by the Government and so avoid paying fees? Please help as I need advice badly.
Alert: Pot transfer question sets alarm bells ringing and prompts warning from ex-Pensions Minister Steve Webb
Steve Webb replies: It is good that you have made contact, as there are a number of aspects of your story which raise alarm bells.
First, when people put money into a pension and get tax relief from the government for doing so, they are then not meant to access that money before the age of 55, save in exceptional cases such as serious ill health.
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If they do so they can face very heavy tax penalties. The Government’s ‘Pension Wise’ website has a specific section warning about schemes to try to get people to access their pension before age 55 and it rightly highlights that many of these schemes are basically scams.
The second thing that stands out is the very high fees that they want to charge you for this transfer.
Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below
As far as I can see, you are being encouraged to draw out one quarter of your pension pot, and they want to take 38 per cent of the £10,000 for doing this.
I would not be surprised if there were also hefty charges buried in the costs associated with the way in which they propose to invest the balance.
A legitimate scheme should not be trying to take such a huge chunk out of your pension.
A third concern is the fact that they plan to invest your money overseas, which can be a common feature of scams.
If you allow them to move your money outside the UK, how can you be sure you will ever see it again, and how would you take enforcement action against them if they did start siphoning off your money?
They are also promising you a relatively attractive rate of return.
Even when this is genuine, it can often be a sign that they are taking a risk with your capital. It would be quite rare for a high rate of return to be associated with an investment where your capital is 100 per cent guaranteed.
In terms of the company you are dealing with, we are not including their name for legal reasons but I have had a look at their website and they admit that they are not regulated by the Financial Conduct Authority to provide you with advice.
They say that they are simply a ‘lead generator’ who will pass your details on to someone else (presumably for a fee).
Clearly, before making big decisions about your finances you should deal with a regulated financial adviser who is impartial and can advise what is in your best interests.
To put it mildly, it is not clear what added value this company bring to the whole process.
The Pension Wise website highlights some of the tell-tale signs that are often associated with scams.
This can include an initial ‘cold call’ that you did not request, offers of high rates of return, plans to invest your money outside the UK, encouragement to access money before age 55, pressure to proceed quickly and so forth.
As you will see, your experience ticks many of these boxes.
If people suspect that they have come across a scam or have fallen victim to one, Pension Wise offer some guidelines as to what you can do including contacting the ‘Action Fraud’ hotline on on 0300 1232040.
The internet is full of people wanting to get their hands on your pension money and you should ensure that you are dealing with reputable financial institutions and regulated advisers before making any decisions.
With regard to your own personal financial situation and your options if you are having problems paying your mortgage, it is always best to speak directly to your lender to discuss your options.
Problems are much easier to resolve when the mortgage company is aware at an early stage.
You may also find the website of the Money Advice Service a helpful source of support if you are struggling with your finances.