Pensions Ombudsman warns against pension unlocking schemes

The Pensions Ombudsman has urged members of the public to avoid pension unlocking firms which loan money secured against a pension or export a pension abroad for early access.

Speaking at the launch of its latest annual report, which showed a 79 per cent increase in complaints last year compared to 2011, Paul Kenny warned against the use of pensions unlocking or pensions liberation firms. He said his office had received a number of complaints from people, often in financial difficulty, who were persuaded to engage with these firms.

“This is a service supposedly allowing early access to pensions by exporting them through another country – Cyprus and New Zealand being favourites – sometimes passing through the United Kingdom.”

He said he had been asked in a number of cases to force scheme administrators and PRSA providers, who have refused to co-operate with such transfers, to make the overseas payments.

'Not trading'
"Investigations have revealed that some firms involved in this activity registered in the United Kingdom were described in the Companies Registration Office as 'not trading'. We also have a complaint involving an individual who effected a transfer, received his lump sum, but now cannot even obtain information about the remainder of his fund."

Earlier this month, police in Britain made a number of arrests in a multi-agency operation to shut down firms which trick savers into believing they can unlock their pension early.

Aviva’s head of policy John Lawson estimates the amount being taken by pension liberation schemes has now accelerated past the £500 million a year mark in Britain.

Mr Kenny said the Revenue Commissioners had been concerned for some time at the activities of a number of firms engaged in practices aimed at helping Irish residents get around tax regulations by gaining early access to their benefits, or receiving the benefits in the form of a tax-free payment which would not normally be allowed in Ireland.

“The Revenue Commissioners do not consider a transfer to a country where the individual has no connection, that is there are neither employed nor tax resident there, to be a good faith transaction.”

He urged workers to be “extremely cautious” in their approach to early encashment, adding that the Revenue Commissioners have strict rules about getting early access to pension benefits, he said.

Mr Kenny said except in the case of ill-health, it was not possible to draw down the proceeds of a pension before the age of 50 in the case of an occupational pension scheme and before the age of 60 in the case of PRSA or a retirement annuity contract, adding his office had no power to change that.

What is “Pension Liberation”?

“Pension liberation” is the practice of accessing or unlocking a pension early.

By law, savers are not allowed to access pension money before the age of 50 in the case of occupational pension schemes and 60 in the case of PRSA and retirement annuity contracts. Only in rare cases, such as people in ill-health, can a pension be drawn down early.

However, a growing number of companies have found ways to get around the rules. These firms contact cash-strapped households offering access to part of their money as a lump sum payment in return for a fee.

The pension liberation is often offered by fake offshore companies that say they can use a legal loophole to release funds, when in fact no legal loophole exists.

The pension liberation company transfers a person’s workplace or private pension into a new pension scheme controlled by the liberation company. While an advance on pension savings can seem a godsend for those in debt, schemes offering to unlock money early have a sting in the tail and can ultimately leave people with nothing in retirement.