Pensions: HMRC warn about pension ‘unlocking’ schemes


FTAdviser, a publication for Independent Financial Advisers, are reporting that HMRC have issued a stark warning to people considering ‘unlocking’ their pensions and accessing the capital before the age of 55.

FTAdviser reported yesterday that two websites, promising to be able to ‘unlock’ an individual’s pension before the age of 55, were causing particular concern.

Retirement rules

Pension rules mean that an individual cannot generally access the tax free lump sum or income from their pension until the age of 55.

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The only exceptions to this are in the case are serious ill health, with less than 12 months to live, certain occupations, such as sports people, have protected retirement ages younger than 55 and a small number of Occupational Pension Schemes.

For the majority of people taking benefits before the age of 55 is not possible. However, a growing number of unregulated firms have appeared over recent months promising to ‘unlock’ pensions for younger people, giving them access to their capital now.

Pension ‘unlocking’ dangers

Despite the obvious impact on future retirement income of ‘unlocking’ a pension it seems that some people are tempted by the promise of an immediate lump sum, especially in these difficult economic times with so much negative publicity surrounding pensions. But, it is now clear that HMRC are taking a keen interest in the area.

Speaking to FT Adviser HMRC said: “Investors should stay well away from pension offers that claim to be able to provide loans or release tax-free cash from people’s pension pots before they reach age 55.”

“The arrangements are often advertised as loan arrangements without any need for credit checks or security. Investors should be aware that, where funds are extracted in this way, scheme members are likely to suffer substantial tax charges.”

HMRC said that tax charges could be as high as 70%.

High court ruling

The HMRC statement comes after a High Court ruling in December 2011 which said that ‘Pension Reciprocation Plans’ were illegal.

Speaking at the time Bill Galvin, Chief Executive of the Pensions Regulator, said: “It’s vital the members understand the risks: if an offer on a website sounds too good to be true, it invariably is. Operators will often charge substantial commission, and other charges, and members run the risk of having to pay unauthorised payment charges to HMRC.”

It was reported last week that the Pensions Regulator have started High Court action against two other schemes which allegedly have helped 476 people transfer £19 million from Occupational Pensions with the intention of ‘unlocking’ the benefits before the age of 55.