More needs to be done to stop pension scams despite Insolvency Service's increasing interventions, says expert

Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, said that whilst retrospective steps to shut down businesses operating pension liberation scams are to be welcomed, further preventative steps are needed to prevent scams from being set up or succeeding in the first place.

Fairhead was commenting after the Insolvency Service announced that it had wound up Thames Trustees, a business it said had "facilitated and operated a pension liberation scheme". The business "operated with a lack of transparency and a lack of commercial probity" and provided clients with access to their pension funds earlier than permitted under the Finance Act 2004, the Insolvency Service said.

The Insolvency Service had investigated the company's practices and had it successfully wound-up by the High Court.

Colin Cronin, investigation supervisor with the Insolvency Service, said: "The structure of this pension liberation scheme was deliberately opaque and the lack of transparency was added to by the failure of those in control of the company to fully cooperate with the investigation."

"The operation of the scheme was highly prejudicial to the clients who were required to invest their pension funds into it in order to obtain the early release of part of those funds. The balance of funds were not legitimately invested as clients were led to believe. These proceedings show that the Insolvency Service will take firm action against companies which mislead the public in this way," Cronin said.

Fairhead said it was the third time in just over a year that the Insolvency Service had intervened to address pension liberation scams, following action in cases involving KJK Investment Ltd and Capita Oak. He said it showed it was becoming "a popular means of dealing with the aftermath" of such schemes.

Fairhead warned that pension liberation schemes can often entail inducing people to put their money into fake investments and that cash payments made from those schemes, through purported loans or commission, can attract tax penalties.

Rules governing pension schemes prevent an individual from claiming pension benefits until they reach the age of 55, unless doing so on ill-health grounds. Tax charges on any unauthorised payment can be as much as 55% of the value of that payment.

"Whilst this action by the Insolvency Service is welcome, more needs to be done to stop monies from finding their way into pension scams to start with," Fairhead said. "In that regard, it is encouraging to see that pension scams have grabbed the attention of the UK parliament and given rise in part to a debate about impact of scams."

A debate has been scheduled for 8 September in the House of Commons on scamming and its effect on vulnerable individuals.

"There certainly appears to be more momentum at present within the industry and government to exploring means of reducing pension scams activity although there is work to be done to identify and flesh out some practical ways of curtailing this problem," Fairhead said. "There is unlikely to be a one-size-fits-all solution although potentially a combination of steps that could be taken to make it more difficult for pension scams to be set up, and easier for providers/trustees to prevent monies being transferred into those that slip through the net."