If you have a pension fund you could be targeted by companies offering you ways to access your pension fund before you are 55, this is known as ‘Pension Liberation’.
How pension liberation arrangements work
Typically, pension liberation arrangements involve transferring your pension savings from your existing pension scheme to another pension scheme to allow you to access funds early. The schemes are offered through companies, who make money by charging you a fee to do this or by taking money direct from your savings. Company representatives or advisers may be pushy and may say they can offer you a loan or advance or cashback from your pension. They may even offer to share their commission for doing this.
Sometimes representatives suggest that because of the excellent returns their new scheme supposedly offers, you’ll get an upfront reward or dividend. Whatever way it’s presented, if you end up getting cash you’re likely to be involved in pension liberation.
Converting a pension pot into cash can sound very attractive to people who urgently need money. However, don’t be tempted, as there are big tax consequences of accessing your pension early. If something sounds too good to be true, it usually is.
Very often the advisers say there is a legal loophole to get round the rules to give you money by transferring your pension pot to a different scheme. There is no legal loophole. Very few people can take money out of their pensions before they’re 55. If you can, it’s usually because you’re retiring on ill-health grounds such as a terminal illness and you must meet strict rules to do this.
If you liberate your Pension you personally will have to pay tax at a special fixed rate of 55% on the funds liberated. The 55% rate isn’t reduced if you are a lower rate tax payer or pay no tax at all.
In addition to the tax the Pension Advisory Service say that on average you will be asked to pay a fee of at least 20% by the company liberating your pension.
steve@bicknells.net
