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Be Aware of Early Release Pension Scams

If it sounds too good to be true, then unfortunately, it usually is. This is especially the case with pension scams.

Recently, we released a warning about pension scammers; once the new reforms are in force from April, pension-savers should be extra vigilant and take special care of the money they’ve saved.

As our partner, Peter McKenna states, ‘If anyone is in any doubt about anything they’ve been told… [seek] specialist advice from an established, FCA-regulated advisor before making any financial decisions’.

The Pensions Regulator have also aimed to raise awareness of ‘pension liberation’ schemes and it is suggested by the Phoenix Group that pension-savers are three times more likely to be approached by scam firms since new reforms were revealed nine months ago.

Early-release pension offers, also known as ‘pension liberation’ or ‘pension unlocking’ schemes, promise that loans or early-release, tax-free cash from pension pots are available to you before the 55 age-cap.

Whilst some companies advertise these cash advances and loans as tax-free, they are actually classed as unauthorised payments and will be taxed.

Pension liberation or pension loan schemes work by allowing you to ‘borrow’ money from your pension fund. Through this agreement, you will be ultimately required to pay the loan back to the company who have arranged it, usually with a 10% fee.

Additionally, you will then pay tax on any unauthorised payments to HM Revenue & Customs. The tax is usually calculated at 55% of the amount accessed despite any declaration that these payments are part of a ‘loan’. If HMRC are not notified of the early-release payments, the tax bill may be increased to 70% of the amount claimed in cash.

Currently, the law allows pension-savers to take out up to 25% of their pension savings as a cash lump sum after they reach the age of 55. The early-release of a pension is limited to very few exceptions, one example being if you are seriously ill.

Otherwise, you will not be able to take money out of your pension pot until you reach the age of 55. Any advance payments you receive are classed as unauthorised.

Pension scams are on the increase and it is very possible you will lose most – if not all – of your savings through pension unlocking schemes. Those reaching the age of retirement are not the only ones vulnerable to the scams either.

It is reported that almost one in eight 18-34-year-olds have been contacted by pension liberators and released some or all of their cash via a scheme. As explained by the Phoenix Group, there are high risks involved; the firm-fees and the tax you will subsequently have to pay can inflict long-term financial damage.


If you are concerned about early-release pension schemes or would like free, impartial advice, please contact us with the details of your enquiry or call 0191 293 1500.