You can’t usually take your retirement savings before you’re 55. But these scams – sometimes called ‘pension liberation’ schemes - offer to give you access to your retirement savings earlier than the usual minimum age of 55.
These ‘schemes’ offer loans, cash payments and incentives to transfer your retirement savings. They often take high charges or fees, invest your money in risky investments and don’t warn you of the tax consequences.
Releasing some of your company or personal pension early can seem like an easy way to clear debt, and raising some much needed cash can seem an attractive option.
However, such plans can easily backfire.
Fees and tax can add up to a hefty 85% of the amount released. And don’t expect to be made aware of this before it’s too late to do anything about it.
An example – Dave’s sorry tale
48 year old Dave is short of cash and he knows he has pension savings of £20,000. If only he could get his hands on £6,000 of this money now.
And as luck would have it, out of the blue Dave gets a call from a company offering to get him access to his retirement savings – all he needs to do is transfer his pension and the company has recommended one. Dave is delighted. He’ll soon have £6,000, enough to cover his debts with a bit left over for a holiday in the sun.
He’s rushed by the company to sign the papers but Dave is only too happy to oblige.
What actually happens to Dave:
- Dave 'liberates' £6,000 and looks forward to receiving this from the company.
- Dave is charged a fee of 30% from the company - and that's 30% of the whole £20,000. So he has to pay £6,000 - the amount he 'liberated'.
- Dave is then contacted by HMRC. He owes the taxman 55% of the whole £20,000. He needs now to find £11,000.
- Dave may still have to find money to pay fines but he's already down £17,000.
- Dave realises he has been well and truly stung.
- And worse still, Dave has no retirement savings.
IMPORTANT – from 9 January 2019 it is illegal for an individual or company to cold you relating to your pension. Please look at the Warning Signs section below for more information.