If you have money worries and a huge pension pot sitting in a bank account, releasing it is tempting; this is bad news
Seems an attractive option for people with cash worries; there are big charges
If you have money worries or unpaid debts it can be frustrating to have a lot of money tied up in your pension, but think twice before trying to unlock the cash.
You can’t touch your company or personal pension until age 55, but some rogue advisers have been promoting a way of getting at your money before then, called ‘pensions liberation’. This can seem an attractive option for people with severe money problems, but hefty charges and tax penalties could end up wiping out all of your pension pot.
Under pensions liberation, an unregulated adviser will typically take control of your entire pension, convert it into a bond, then lend half the money back to you as cash. You will have to pay both the loan and interest in full before you retire. The adviser may call it a ‘pension loan’, falsely claiming you are only ‘borrowing’ the money in your pot.
City regulator the Financial Conduct Authority has warned that any scheme offering to help you release cash from your pension before age 55 “is almost certainly a scam”.
It may sound attractive to people in financial hardship, but the huge charges and potential tax penalties can wipe out your entire fund, says Andrew Tully at retirement specialists MGM Advantage. “The companies behind these typically charge huge fees, between 20% and 50% of your pension fund’s value. Even worse, if HM Revenue & Customs find out you have taken out one of these unauthorised schemes, they could hit you with a tax penalty of up to 70% of your money.”
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