In a bid to tackle fraudulent so called ‘pension liberation schemes’ the police have carried out a series of arrests.

Arrests have been made by the City of London Police, as well as forces in Cheshire and Scotland and a call centre was raided where computers and documents were seized.

An awareness campaign was launched in February by the Pension Regulator to warn the general public about pension liberation schemes.

Not all pension liberation schemes are illegal, but if people are being misled about any tax consequences that may happen if you cash in your pension early, then the scheme becomes unlawful.

Pension liberation schemes tempt those who are short of money to access some or all of the money in their pension schemes before they reach 55.  However, many of the schemes run do not fully explain how the administration fees and tax implications will vastly reduce how much money a person actually receives.

Industry experts estimate that approximately £400 million has already been released via pension liberation schemes.

Operators of these schemes often use spam methods to promote their products, namely cold calling and text messages, although some use websites promotions to tempt people to access their pensions early.

The schemes work two different ways, firstly by the person taking a loan from the provider which is then secured on their pension, or secondly by transferring money from the original pension scheme into an unregulated investment which is usually based overseas and offers no financial protection to the client.

The operators of the pension liberation schemes usually charge fees of anything from 10% to 20% of the amount of money transferred.

However, what many people don’t realise, are the tax implications a person faces if they cash in their pension early.  Pension savings are tax privileged, but only if they are left untouched until a person reaches 55.  If a person releases cash from their pensions before their 55th birthday, HM Revenue and Customs can tax the amount released by up to 55%

These types of schemes have been on the increase recently and the Information Commissioner’s Office—the regulator of telemarketing and text messages—has reported that spam text messages for pension liberation schemes have more than trebled over the past six months.

The ICO estimated that out of all the spam text messages sent to UK mobile phones in March, one in eight was related to pension release, with a similar number of cold calls reported.