Last month I wrote about so-called “pension liberation plans”, which are a very tempting way to release funds below the age of 55 but in many cases turn out unwise. Today’s “Sunday Times” urges that they should be banned by a new financial watchdog that will launch tomorrow.
According to the paper, the new Financial Conduct Authority (FCA) replaces the much-criticised Financial Services Authority (FSA), “which failed to prevent scandals involving payment protection insurance (PPI), endowment policies and split-capital* investment trusts.” The new body promises to act fast and ban poor products overnight, which is to be applauded.
As for these pension liberation plans, which have grown rapidly; they promise to release funds from your pension before the age of 55, when it’s normally available, by transferring the funds into another scheme, often offshore. However the fees can be eye-watering and they can attract extra tax penalties of up to 70%.
[* I admit that when I read the article I was worried about the mention of split-cap investment trusts. Over the past year I have become a fan of investment trusts or “ITs”; I hadn’t heard of this particular scandal and I wondered if I had invested unwisely. Turns out I needn’t have worried; the scandal appears to have been unveiled, and cleared up, nearly ten years ago; and it concerned a specific type of fixed-term investment trust.]