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Difficulties with Pension Liberation Schemes

Recent changes to UK pensions rules mean that people under 55 have more flexibility in how to deal with their pension funds. 

As a result some people may have been advised to transfer a part of their pension funds into another scheme and take out a loan with the promise of a low risk investment which offer high investment returns. Those that have done so may have suffered unexpected tax liabilities or poor investment performance and it may be that they have received negligent advice and been the victim of mis-selling.

Many of the people affected are dis-satisfied with advice to transfer their pension fund to high risk funds whilst obtaining a loan from the pension fund with poor explanation of the risks involved. The financial consequences of making the transfer and obtaining the loan are now becoming more fully felt. In some instances the transfer and associated loan has led to substantial unexpected liabilities for tax which were never explained and in some extreme examples it may be that the investors will face receiving nothing back from the investment and loan.

Worse still the intermediaries and the scheme would charge an extortionate transfer fee often amounting to 5% of the funds. The regulator has already described these fees as not “justified or appropriate”. We agree.

Typically an investor with a substantial pension fund is targeted by cold calling or through pushy sales presentations at a hotel or golf club. As a result of the high pressure sales tactics with promises of tax free low risk returns, the investor is persuaded to invest their pension fund in risky funds investing in areas such as theatre productions or offshore property development schemes, and a loan is taken out at the same time from the fund for the investor to spend as they wish.

At the same time the investor was told that this was tax efficient. Some time after making the transfer to the risky pension scheme the investor then receives calls for tax on the associated loan which they never expected, and which they were re-assured would never happen. In other cases the investment has performed poorly and completely out of line with what was promised to them.

The tax position in relation to the loans is potentially ruinous. In the very worst case scenario an investor could be facing a tax demand for 55% on any loan he or she received from the fund and at the same time could also face a tax demand for 55% on any loan made from their pension pot within the fund; and a demand for repayment of the loan taken out.

Slater and Gordon believe that people affected may be able obtain redress and we believe that people affected should seek expert legal advice.

David Wright is a Group Litigation Lawyer at Slater and Gordon in London.

Slater and Gordon's Group Litigation Lawyers are currently investigating Pension Liberation Schemes, the Ark Pension scheme, Prudential Pensions and Sesame Self Invested Personal Pensions.

If you have been affected by such schemes please call freephone 0800 916 9046 or contact us online and we'll be happy to help you.

Slater and Gordon's Pension Law Solicitors advise individuals and work with Trade Unions, membership organisations and Police pension schemes in a wide range of pension law issues across the UK.

Slater and Gordon Lawyers have 1,450 staff and offices in London, Manchester, Liverpool, Birmingham, Sheffield, Edinburgh, Cardiff, Milton Keynes, Merseyside, Bristol, Newcastle, Halifax, Wakefield, Cambridge & meeting rooms in Bramhall, Cheshire.