What are the pitfalls of releasing funds from a pension policy?

Monday, 03 September 2012 04:57

Ben Rees, a pensions expert from Denehall Wealth Management Ltd, answers the question:-

Stuart asks:-

I would like to investigate the possibility of selling / releasing funds in a pension policy I have.  Can you advise please the first steps I should take / what information you require?

Ben answers:-

I have seen a number of unauthorised schemes advertised recently, offering to 'unlock' pensions and provide instant access to the money invested. Unfortunately, releasing money from a pension plan before the minimum retirement age (currently 55) can lead to large tax bills and heavy losses for the plan holder.

These so-called 'pension reciprocation' schemes often invest offshore or overseas. They pay out in the form of a loan of up to half the value of an individual's pension pot, but charges can be as high as 20% of the value of a fund, often running into the thousands of pounds.

The FSA have commented recently on these unauthorised schemes, saying: 'Like The Pensions Regulator and HM Revenue and Customs, the FSA has seen an increase in firms offering "early pension release schemes," often referring to them as unlocking, liberating or releasing funds tax free. There is a high chance that these are scams run by illegitimate firms trying to con individuals out of their pension money.' In all, quite an indictment.

My advice would be to absolutely avoid any such schemes. I would advise you to seek independent financial advice from a suitably qualified (preferably Chartered and/or Certified) financial planner who will be able to discover more about your circumstances and explain the options available to you.

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

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