Pension unlocking

Find out why we urge you to be wary of any schemes that offer the chance to take money from your pension by unlocking some of your retirement pot early.

Pension unlocking or pension liberation is  a way of accessing money in your pension fund before you retire.

You can usually only take money from your pension once you are aged 55 or over, but some schemes claim to let you gain access to your money earlier by borrowing from your pension fund. This is commonly known as 'pension liberation'.

Early access to a pension is rarely in anyone's long-term financial interests.

How pension unlocking works

The promotional material we have seen from pension liberation schemes states you can take half of your employee occupational pension fund now as cash and you will not have to pay any upfront fees or deductions from the amount taken out of your pension.

Typically, the company involved takes control of your entire pension fund and transfers it to a separate corporate bond. The company issuing the bond then agrees to loan you half of the transferred amount as cash. Although the product material we have seen does not include fixed loan repayment schedules, the loan and interest will need to be repaid in full before you retire.

Fees for the scheme are taken from the amount that remains in your pension fund as part of the overall charges. The promotional material for the schemes we have seen does not state the exact level of fees or charges, so there is a good chance that you are likely to end up with less money than you started with.

The risks of pension unlocking

The value of your pension depends on the performance of the investments in it. So, for example, with pension liberation schemes, poor market performance would reduce the value of your pension pot – but not the loan amount you have to repay. The risk of market volatility harming your pension as a whole is significantly increased.

If your loan repayments are based on a percentage of your overall pension, then good investment performance would mean a significant increase on the rate you pay the loan back on.

You should also be wary of unsolicited offers to unlock your pension as we are aware that fraudsters have been offering people money from their pension pot. If you are contacted by somebody offering these services, you should always check if they are regulated by us using our Financial Services Register and then contacting them using the registered details that we have on our register. For further information about this, You can visit our ScamSmart website for advice on spotting and avoiding scams.

Tax on pension unlocking schemes

The schemes claim that no tax is payable from the money you take as cash. However, it is not clear what rules the schemes are relying on to make this claim.

Anyone who accesses money from their pension, either via a loan or other ways outside of the normal allowed methods, runs the risk of having to pay unauthorised payments charges. These can be up to 70% of the value of the loan.

We are working closely with HM Revenue and Customs and The Pensions Regulator to find out more.

Alternatives to pension unlocking

You should consider alternatives to pension liberation schemes. If you have debts, it is likely to be better in the long term for you to continue with the terms of repayment you currently have or speak to a debt adviser. Pension liberation schemes are an expensive way to free up extra cash and will affect your income for the rest of your life.

Advice on pension unlocking

If you have not done so, seek independent financial advice and ensure you and your financial adviser understand how these schemes work and what they mean for you. Some of the people promoting these schemes may be authorised by us as financial advisers, so ask your adviser to explain the full consequences to you. 

Discuss with your financial adviser whether there are other options which are regulated by us and would meet your needs and give you the protection of the Financial Services Compensation Scheme and Financial Ombudsman Service.

If you have liberated your pension and have concerns, you should firstly take the matter up with the firm that advised you.

You should seek independent legal advice on the risks involved with any firm taking sole control of your pension fund.

Contact our Consumer Helpline on 0800 111 6768 or 0300 500 8082 if you are concerned about any of these schemes or products making similar claims.

You should also report suspected fraud to the police through Action Fraud, which you can contact on 0300 123 2040.

Page updates

12/08/2021: Information changed Money Advice Service to MoneyHelper