Ben Rees, a pensions expert from Denehall Wealth Management Ltd, answers the question:-
I have been looking into the possibility of raising funds against an old work pension that I have
There have been two options put to me recently as follows:
1. To transfer to a SIPP. Part of this also appears to allow me to invest in Carbon Credits and take a 20% cash back on the investment. What are the tax implications if I were to do this?
2. “Sale of Pension” – This appears to allow me to raise say 50% of my pension, but in reality means transferring to a new pension account. The pension advance is it appears privately funded by the new provider – ie it is not deducted from the pension fund itself. The pension then is invested whereupon it can be drawn from at age 55 onwards. Again, if I were to do this, what tax implications are there?
1. Hi Stuart. Firstly, I would strongly discourage you from transferring your pension to a SIPP without taking independent financial advice from a suitably qualified pensions adviser. Carbon credit investment is extremely high risk, and the charges associated with these transfers can be eye watering.
Usually, your pension will be transferred offshore, and the investment company will take a 'management charge' of 20-30% of your fund. Some of this money is then returned to you. The Financial Services Authority (FSA) and The Pensions Regulator have warned investors that such operations could be illegal and are concerned at the increasing incidence of this type of fraud.
in December 2011, the High Court ruled that these schemes are illegal, and many firms have subsequently stopped selling the plans, but others persist. They may claim they are using a ‘legal loophole' to release funds, when such loopholes are questionable at best.
2. Another type of pension release arrangement allows savers to access their pension fund before age 55 through loans, repayable at age 55. Typically, an administration fee will be charged and the provider will also take a percentage of the future value of your fund.
The likely outcome is that your pension will be severely eroded by the time you retire, potentially leading to financial hardship in retirement if this forms the bulk of your pension provision. I would urge you to meet with a suitably qualified pensions adviser and discuss your wider options before entering in to any such scheme.
If you have a question for Ben go to the Myfinances.co.uk's Ask the Pensions Expert section
Or for more information on your pension options go to Denehall Wealth Management's site
Twitter: My Finances
Join the conversation at #news_myfinances