Pensions: New alert issued over early access pension ‘liberation’ schemes

A warning was issued this week to pension savers tempted to access their pension before the minimum age of 55.

HMRC (Her Majesty’s Revenue & Customs) has warned about vulnerable consumers being targeted by “unscrupulous” firms, offering early access to pension funds, often claiming to have found a loophole in legislation.

Speaking this week, HMRC said categorically: “There is no loophole”.

According to HMRC pension ‘liberation’ schemes work in a number of different ways, including transfers to company schemes, loans back from the pension to the individual, or paying a ‘kick back’ of commissions received when the investments held within the pension are changed.

However, HMRC say: “Whatever way it’s presented, if you end up getting cash you’re likely to be involved in pension liberation.”

It is clear HMRC are treating pension ‘liberation’ seriously and will be clamping down hard on both companies who offer such schemes as well as individuals who take money from their pension before the age of 55.

When can you access your pension?

Under normal circumstances a pension cannot be accessed until the age of 55, when up to 25% of the fund can be taken as a tax-free lump sum and the balanced used to provide an income, possibly via an Annuity or an Income Drawdown plan.

There are some very limited circumstances, usually involving serious ill health, when a pension can be accessed before the age of 55.

HMRC has warned against trying to access a pension before the age of 55, particularly highlighting the fact that individuals cannot take loans from their pensions; a tactic often used by so called ‘pension liberation’ firms.

Penalties for accessing your pension early

HMRC seem particularly concerned that cash strapped consumers could be tempted by the claims of pension ‘liberation’ companies, but have also pointed out that anyone unlawfully accessing their pension before the age of 55 will have to pay a 55% tax charge on the amount released, plus penalties if they don’t inform the authorities in good time.

The tax of 55% is paid by the individual and HMRC have confirmed it would still be payable, even if the person accessing the pension before the age of 55, didn’t realise they had broken the rules or offered to repay the money.

Furthermore, HMRC said: “(We) will find out if you’ve broken the rules and you’ll get a letter setting out the tax you owe and asking you to the pay this, you might not get this letter until after you’ve spent the money.”

How to avoid pension ‘liberation’ scams

As tempting as it may be, especially for consumers struggling to make ends meet, accessing your pension before the age of 55 should be avoided at all costs. It’s clear HMRC is clamping down on these pension ‘liberation’ schemes and it probably won’t be long before the personal finances pages of the press are awash with stories of people being pursued for large amounts of tax.

So how can you avoid being scammed by pension ‘liberation’ firms?

The most obvious answer of course is simply not to take any action which could lead to you gaining access to any of your pension before the age of 55; however there are other warning signs you can look out for:

• Never reply to text messages offering you early access to your pension
• Never give out personal financial information to cold callers or people you don’t know
• Only take advice from advisers registered with the FCA (Financial Conduct Authority), this is easy to check by using the FCA register, which can be found by clicking here
• Loans are not a way around the rules, despite what you might be told
• Remember that no matter what you are told and how persuasive the salesperson is, there are no loopholes
• Don’t be rushed into making a decision
• Avoid schemes which sound too good to be true, they usually are

Do you have concerns about your pension?

Many pension ‘liberation’ firms often play on consumer’s mistrust of pensions, making unfounded claims that many pensions are not performing, or that they could be invested more sensibly elsewhere.

If you are concerned that your pension is not performing, or you are unsure of what it will provide you in retirement, we can help.

Our team of Independent Financial Advisers are experienced in clients the length and breadth of the UK on their pensions.

If you have a pension and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk

You can also confirm that we are regulated here in the UK by the Financial Conduct Authority by clicking here.