Early pension liberation; why you should avoid it | SavvyWoman

Early pension liberation – taking money out before you’re 55 – what are the risks?

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If you’re contacted by someone who says they can get you access to your pension before you’re 55, watch out. It’s likely to be a pension ‘liberation’ scam. Find out how they work.

Early access to your pension

If you’ve been saving into a pension and you want to access the money early, the rules say that you have to wait until you are 55 at the earliest before you can access money in your pension.

HM Revenue and Customs generally take the view that if you’re accessing your pension and you’re not yet 55, it’s an unauthorised withdrawal of cash. That means you’d have a tax charge imposed on you (which can be up to 55% of the amount taken).

SAVVY TIP: There are one or two exceptions where you can get access to your pension if you’re not yet 55,  such as if you’ve been diagnosed with a serious illness and you have less than a year to live, in which case you’re able to take money out of your pension early. However, this situation won’t apply to many people.

Pensions liberation/early release

There’s been a rise in the number of people who’ve been contacted by companies claiming they can get them access to their pension (or some of it) before the age of 55. However, in many cases these companies have turned out to be scammers.

By releasing money from your pension before you’re 55 you could:

1. Lose your entire pension. There’s no guarantee that these schemes aren’t a scam.

2. Pay high fees or commissions. These can add up to between 10% and 20% (or more) of your pension fund.

SAVVY TIP: If you had a pension fund of £20,000, according to the Pensions Regulator, you may be able to ‘liberate’ half of that (£10,000), but the firm may take a commission of £4,000, leaving £6,000 that may be invested in offshore investments that you may never see again.

3. Face a substantial tax charge. HM Revenue and Customs takes the view that money taken out of a pension before the age of 55 is ‘unauthorised’ and you’re likely to have to pay tax on it.

4. Lose it in exotic investments. Some of these schemes reinvest your pension money in overseas investments (such as in Cambodia, Belize or other countries where it could be difficult to impossible to get it back if there was a problem).

SAVVY TIP: The Pensions Regulator says that whereas in the past pensions liberation schemes used to be fairly straightforward, as these have been clamped down on, they’re now much more complex.

Useful links:
Warnings about pension liberation on the FCA website.

The Pensions Regulator has similar information about pension scams on its website.

Related articles:

How much of your money is protected by the Financial Services Compensation Scheme?

How not to fall for a pension scam and to keep your pension safe.

How to claim your state pension – what you need to know

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