The dangers of illegally releasing pension funds before the age of 55

by Bob Cook

You may have seen the claims from some companies that they can help you access your pension fund before the legal age of 55. Often posing as Her Majesty’s Revenue and Customs (HMRC) registered pension schemes, these companies claim to be able to offer ‘pension liberation’, allowing you to unlock some of the value of your pension pot. However these are NOT HMRC registered schemes.

Releasing money from your pension fund before the age of 55 can often result in huge tax penalties and exorbitant costs. These transactions are categorised as ‘Unauthorised Payments’ by HMRC.  Unauthorised payments being made from a pension scheme can carry tax charges of more than half of the unauthorised payment under HMRC rules, and the company encouraging you to illegally release a cash lump probably won’t tell you this bit!

In addition, some of these pension liberation companies can act unscrupulously, using predatorial tactics, duping customers with inducements, and using fraudulent means to release your pension funds. As a result earlier this year The Pensions Regulator, HM Revenue & Customs and Action Fraud announced that they were working together to combat such schemes. Pensions Minister Steve Webb said “Pensions liberation fraud is a crime and we, along with the police and others across government, are cracking down on these schemes”.

The City of London Police have recently been involved in dismantling a suspected organised crime gang who were cold-calling and texting pension holders with fraudulent pension liberation offers. Fraudsters are seeking to exploit new opportunities and the promise of releasing your pension savings can appear very attractive to some people in these hard economic times. The reality however is that many people are being conned into releasing funds into high-risk and non-existent investment schemes, many of which are overseas.

Under the rules of Her Majesty’s Revenue & Customs, a member of a pension fund can only take money from their pension once they are aged 55 or over. Therefore if you are offered access to your pension fund before the age of 55, please be warned. Firstly it is not legal, and there are likely to be huge tax penalties and exorbitant costs. The HMRC have said that early access to pensions is rarely in anyone’s long-term financial interests. Once you are over the age of 55, Best Pension Annuity can help you legally release your maximum tax free cash from your pension fund without hassle. They will provide you with all the information that you need so you can make an informed decision about how best to release your tax free lump sum.

So worried is the financial services industry by these illegal pension unlocking schemes, that pension providers have started to step up their efforts to protect consumers. Companies such as Standard Life, LV and Zurich have all revealed initiatives in recent weeks to drive out such practice, which include proactively blocking pension transfers if they suspect any wrongdoing. Without doubt more needs to be done to educate and warn people of the dangers involved in such schemes.