Beware of Early Pension Release


Pension release is when you agree to transfer your pension savings to an arrangement that will allow you to access your funds before you reach the age of 55. In rare cases, such as terminal illness, it’s possible to access pension funds before the age of 55.

However, for most people, promises of early cash are false and are likely to result in serious tax consequences. Transferring your pension early can result in tax charges and penalties of more than half the value of your pension savings, and those being targeted are usually not told about these potential tax implications.

You need to understand the risks of releasing or ‘cashing in’ your pension before 55, when it’s fraud, how you might be targeted with illegal pension transfer or pension loan offers and who to contact if you suspect it.

Some pension transfer schemes that offer to release your pension before the age 55 can be illegal if you are misled about the consequences of entering into one of these arrangements. This could be because you’re not informed of the tax consequences, fees involved or how the remainder of your pension savings are invested.

An increasing number of companies are targeting individuals claiming that they can help them release their pension cash early. You may be targeted through websites, mass texting or through cold calls offering pension loans or opportunities to cash in your pension.

You should be very wary about giving out information in response to a text or cold call. You should always make sure that you know who you’re dealing with. You should always take appropriate financial advice before using pension release websites and be aware of the potential for charges being imposed by HMRC.

Converting your pension into cash before the age of 55 might sound very attractive if you urgently need money. However, if something sounds too good to be true, it often is. The risks of cashing in your pension early include:

  • You may be poorer in retirement. You can only use your pension fund once. If you release your pension, there will be much less (or no) income from it when you retire.
  • You may be hit by unexpectedly high fees. As part of the release transaction, you will probably have to pay the organisers a ‘commission’ or ‘arrangement fee’ and these can typically range from 10–30%.
  • You may be misled as to the consequences of the transfer. You may not be informed or misled as to the huge tax consequences of making such a transfer.
  • You may be hit with significant charges by HM Revenue and Customs (HMRC). If you release your pension, you need to tell HMRC and will have to pay tax. If you fail to tell HMRC and HMRC contacts you first, you may be charged penalties and interest in addition to the tax.

It is important to also watch out for the alternative names given for forms of pension release, including pension loans, pension transfers and pension liberation.

Pension release should not, however, be confused with ‘Pension Unlocking’. With pension unlocking, a person aged 55 or over can release up to 25% of their total pension as a tax free lump sum. Unlocking your pension will almost certainly mean you will have less income in retirement and, as a result, unlocking is only suitable for a very limited number of people and circumstances.

If you receive any early pension release approaches or if you have questions about  retirement and pensions planning, please just get in touch with us.

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Adrian has a perceptive understanding of our financial situation, gives common-sense advice and is skilful in steering us in the direction he knows to be most suitable for us. Mr & Mrs S - Solihull

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Adrian Smith

Chartered Financial Planner
Chartered Wealth Manager

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