Early pension release - Financial Conduct Authority

Early pension release

Last Modified: 24/02/2016
Find out how early pension release works and why accessing your pension before you are 55 will cost you most of the money in it.

You should be especially wary of any scheme offering to help you release cash from your pension before you are 55, as it is almost certainly a scam.

This may also be called ‘pension liberation’ or a ‘pension loan’, as it is often claimed you will ‘borrow’ money from your pension fund.

But you can only take money from your pension when you are 55 or older – other than in certain circumstances, like having a terminal illness – and there are still rules about how to do this without having to pay tax. This is called ‘pension unlocking’ or ‘pension release’.

If you access your pension funds before the age of 55 you will have to pay a tax bill that is 55% of the amount accessed, even if you claim it was a ‘loan’. If you do not tell HMRC about it, a penalty could increase the tax bill to 70% of the amount you claim as cash.

For example, we have seen someone access their entire pension of £150,000 to settle their debts. After paying £15,000 to the company involved for their 10% fee, then paying £82,500 to HMRC for the 55% tax bill, the person had paid out nearly £100,000 and was left with no funds in their pension and only £52,500 cash.

You will have to pay 55-70% tax on the amount accessed even if:

  • you did not understand or realise you had broken the tax rules
  • you offer to put the money back in your pension
  • you have paid fees or charges to the company involved, or
  • you have spent all of the money you took out of your pension.

This means taking cash from your pension before you are 55 is highly unlikely to be in your long-term financial interests.

If you want to out more about pension scams, and how to avoid them, you can visit The Pension Regulator website. Here, you’ll find more information about what you can do if you’re being targeted and who you can speak to for help.

HMRC has more on early release pension schemes and the tax rules.

How it works

You may be called out of the blue, but initial contact often comes by a text message to your mobile phone or an email. You may also see adverts or websites for early pension release schemes.

You could be offered a free review of your pension then told you can take cash out of it, even though you are under 55 years. This may be called a ‘loan’, ‘saving advance’ or ‘cashback’.

Your pension funds will be transferred from your legitimate pension scheme into one set up by the company promising you early access to your money. This new scheme is often based abroad.

You may be ‘loaned’ an amount around half of your pension, with the company involved taking a fee of up to 30%. This fee is often unclear and does not include the tax you will owe for accessing your pension early.

Any funds remaining in the pension scheme after fees and tax are paid should then be invested. But we have found money invested as part of an early pension release scheme is often put into high-risk products or projects like overseas property developments, or is sometimes outright stolen.

You can find out more about early pension release schemes and how they work from The Pensions Regulator.

How to protect yourself

If you are thinking about entering a scheme to access your pension funds before you are 55, you should first get independent professional advice and consider all other options.

If you want to use the money in your pension to repay debts you should firstly contact a provider of free debt advice, like the Money Advice Service, to find out what else you could do. While accessing your pension funds early might help you meet your immediate debts, it is a very expensive way to free up money and will significantly reduce your income later in life.

We strongly advise you to only deal with financial services firms that are authorised by us, and check the Register to make sure they are. You can also see on the Register whether an individual has been approved by us.

Keep in mind that authorised firms you have no relationship with are highly unlikely to contact you out of the blue to discuss your pension. We have seen very little to suggest that firms or advisers promoting and arranging early pension release schemes are authorised by us, even when they have said they are.

If an adviser authorised by us promotes an early pension release scheme ask them to explain the full consequences and risks involved, and your other options. These schemes can be illegal if you are not told, or are misled, about the tax consequences and risks of entering into one.

There are more steps you can take to keep your money safe – find out how to protect yourself from unauthorised firms.

If you are approached about an early pension release scheme or have entered into one, you should report it to Action Fraud on 0300 123 2040.

Find out more about what to do if you think you have been scammed.

Consumer Helpline

Telephone: 0800 111 6768

See more ways to contact us

Related links

External links

HMRC on early pension release

Explains more about these schemes and the tax rules

The Pensions Regulator

Deals with work-based pension schemes and related complaints

Action Fraud

The national fraud and internet crime reporting centre

Money Advice Service on scams

Useful tips to protect yourself from scams and identity theft