Find out how early pension release scams work, how to avoid them and what to do if you are scammed.
You should be very wary of any scheme offering to help you release cash from your pension before you’re 55, as it’s almost certainly a scam.
This may also be called ‘pension liberation’ or a ‘pension loan’, as it’s often claimed you will borrow money from your pension fund.
But generally you can only take money from your pension when you’re 55 or older except in certain circumstances, like having a terminal illness.
You could face a tax bill of 55%, plus other charges, on what you withdraw - and you could also lose all your money.
You will have to pay tax even if:
- you didn’t 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
- you have spent all the money
This means taking cash from your pension before you’re 55 is highly unlikely to be in your interests.
How early pension release works
Investors are often called out of the blue, but contact can also come by email, post, word of mouth or at a seminar or exhibition.
You could be offered a free pension review, then told you can take cash from your pension even though you’re under 55. 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 scam. This new scheme is often based abroad.
You may be ‘loaned’ an amount (often around half of your pension) with the company involved taking a fee, often as much as 30%. This fee is often unclear and doesn’t include the tax you will owe for accessing your pension early.
Any money remaining in the scheme after fees and tax are paid will then be invested in high-risk products or projects like overseas property developments – or it’s sometimes simply stolen outright.
How to protect yourself
If you get a cold call about your pension, the safest thing to do is hang up - it’s illegal and probably a scam. Report pension cold calls to the Information Commissioner’s Office (ICO).
If you get offers via email, text or online adverts, you should simply ignore them.
Be wary if you’re contacted about any financial product or opportunity and they mention using your pension.
Professional advice on pensions is not free – a free offer out of the blue is probably a scam.
Always check that anyone offering you advice or other financial services is FCA authorised and permitted to give advice on pensions.
The first step is to check if their name appears on our Register.
If the firm is on our Register, the next step is to call our Consumer Helpline on 0800 111 6768 to check the firm is permitted to give pension advice.
If you don’t use an FCA-authorised firm, you also won’t have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) so you’re unlikely to get your money back if things go wrong.
Always be wary if you’re contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true.
If an FCA-authorised adviser recommends an early pension-release scheme, ask them to explain the full consequences and risks, and your other options. These schemes can be illegal if you’re not told – or are misled – about the tax consequences and risks of entering into one.
If you intend to use the money in your pension to repay debts, you should contact a free debt adviser first to see what else you could do. Taking money from your pension early might help your immediate debts, but it’s a very expensive way to free up money.
What you should do next
If you have already moved your pension pot and have concerns, contact the firm involved and ask for your money back. The Financial Ombudsman Service;may be able to help if you can’t resolve the matter.
If you’re considering changing your pension arrangements, you should:
- get impartial advice from a financial adviser unconnected to the firm offering a free review – find a financial adviser
- check the firm is listed on our Register – only use the contact details listed on the register
- find out more about pension review scams
- read more about how to avoid pension scams
- find out more about pensions from Pension Wise, the Money Advice Service and The Pensions Advisory Service
If you have been scammed
If you have already invested in a scam, fraudsters are likely to target you again or sell your details to other criminals.
The follow-up scam may be completely separate or related to the previous fraud, such as an offer to get your money back or to buy back the investment after you pay a fee.
If you have any concerns at all about a potential scam, contact us immediately.