Pension scam: FCA warns early release scam could see you hit with 55% tax bill | Personal Finance | Finance

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With living costs on the incline, globally, serious scam risks are ever-increasing as fraudsters buckle down on tactics to secure some more cash. The Financial Conduct Authority (FCA) is warning investors to be wary of a certain pension scam that could see a sizeable tax bill or worse – the total loss of savings.

The scam targets victims to release their pensions early. This might also be referred to as ‘pension liberation’ or a ‘pension loan’, as fraudsters often claim their target will ‘borrow’ money from their pension fund.

In a statement on its website, the FCA said: “You should be very wary of any scheme offering to help you release cash from your pension before you’re 55, as it’s almost certainly a scam.”

The statement continues: “Generally, you can only take money from your pension when you’re 55 or older except in certain circumstances, like having a terminal illness.

“You could face a tax bill of 55 percent, plus other charges, on what you withdraw – and you could also lose all your money.”

READ MORE: Retiree loses over £50,000 and takes out second mortgage in scam

If agreed, the victim’s pension funds will be transferred from their legitimate pension scheme into one set up by the scam. The FCA said that this new scheme is often based abroad.

The victim then might be ‘loaned’ an amount, often around half of their pension, with the company involved taking a fee, often as much as 30 percent. This fee is often unclear and doesn’t include the tax the person will owe for accessing their pension early.

The FCA said: “Any money remaining in the scheme after fees and tax are paid will then be invested in high-risk products or projects like overseas property developments – or it’s sometimes simply stolen outright.”

READ MORE: Santander scam warning as ‘convincing’ letter threatens woman with fee

“These schemes can be illegal if you’re not told – or are misled – about the tax consequences and risks of entering into one.”

If someone gets a cold call about their pension, the FCA said the safest thing to do is hang up, as it’s illegal and probably a scam.

People can report pension cold calls to the Information Commissioner’s Office (ICO), here.

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