"If you didn't know what Pension Liberation was, it might sound like a good thing," says Spence and Partners' Neil Copeland. 

Liberation tends to have positive connotations associated with achieving freedom and equality or protection from abuse or exploitation.

So called Pension Liberation preys on vulnerable people, often desperate for money who are offered a short term solution, which often seems too good to be true. Because it is.

So let's stop talking about Pension Liberation and start talking about Pension Destruction, as that would be more reflective of what actually goes on here.

Typically, Pension Destruction arrangements involve individuals transferring pension savings from an existing bona fide pension scheme to another pension arrangement. There is then some miraculous method by which a cash sum is made available to the individual before age 55. This is sometimes presented as some sort of bonus, or commission or a loan. It is often suggested to the transferee that the scheme's promoters have discovered a loophole in HMRC regulations that allows them to provide early access to the individuals' pension funds, directly or, more often, indirectly. The charges made by the promoter for releasing this cash are often eye watering.

HMRC is regularly criticised for the length of its tax rules. However its commentary on the question of loopholes in this area is admirably concise: "There is no legal loophole."

What are the consequences for an individual availing one of these Pension Destruction schemes? Well let's take one of HMRC's own examples:

- Bill has £28,000 in his former employer's pension scheme and transfers it to another scheme.

- Because he's short of money, he accepts that he'll lose £10,000 of it in fees to the promoter of the scheme.

- Bill gets £18,000 and spends it, say, repaying a debt.

- HMRC investigates the transfer and, because he's only 42 and has broken the rules, writes and tells him he has to pay a tax charge of £15,400 (55% of the £28,000 paid out of his pension savings).

- Bill must pay the tax charge, not the pension scheme, and certainly not the promoters. The tax charge is in addition to the £10,000 paid in fees to the promoters.

Some apologists for Pension Destruction argue that, if you set aside the illegality of the whole thing, allowing Bill to clear his debts is a good thing for Bill. But as the above example shows, the only people really likely to benefit in this scenario are the promoters of the scheme.

The promoters have £10,000 and Bill has swapped an £18,000 debt with his creditors for a £15,400 debt with HMRC, and no pension.

That doesn't sound particularly liberating to me.

Written by Neil Copeland, director, Spence and Partners

Neil_Copeland@spenceandpartners.co.uk