If you have savings in a pension pot, you may be approached out of the blue by a firm offering to help you access all your pension before you're 55 and convert it into a loan. This is known as pension liberation. They often target people who they know might be short of cash, for example if you've got a poor credit history.
They may tell you there is a legal loophole you can exploit to cash in all your pension early and that they can help you do it. But watch out if you hear this – there is no such loophole - and you can end up losing most of your money and with a huge tax bill to pay!
All pension schemes have rules about when you can start to take your pension. It's usually not possible to do this before you are at least 55. There are very few exceptions to this, for example if you are terminally ill. If your pension starts earlier than this, it will be an unauthorised payment and you will pay 55% extra tax on the pension. You also won't be able to take a tax-free lump sum. This is because you would have benefited from tax relief on the pension payments you were making, and the pension was meant to be there for you in your retirement.
How the scam works

  • your pension is first transferred to another pension scheme, which may be abroad
  • the firm may offer you cash incentives or loans to do this
  • the scammers then take a large fee as their cut and tell you there's nothing to worry about
  • HM Revenue and Customs (HMRC) eventually catch up with you and you get a huge tax bill, even if you've spent all the money that was left. It's always you who will be liable to pay this tax and not the firm or the special adviser who you dealt with. By this time, they're usually long gone anyway.

Even if you do decide yourself, without being approached, that you want to access your pension when you're 55, you'll still have to follow your pension scheme's rules. If you want to access some of your money at 55, you need to think about how this could affect the amount of  pension you'd get. You'll usually get much less out than if you have left it invested till your normal retirement age, which is usually 60-65. It can also affect what state benefits you may be able to get.
You should always get independent financial advice first if you're thinking of taking any part of your pension before you're 60-65. You can't take a pension before you're 55.
You can find useful information about what happens if you access your pension early on the HMRC website at www.hmrc.gov.uk
You can also read a very helpful leaflet called 'Predators Stalk your Pension' on the Pensions Advisory Service website at www.pensionsadvisoryservice.org.uk.
For free and impartial advice on this or any other issue please contact Citizens Advice in any of the following ways:

Phone for an appointment: 01562 60194
Website for advice: www.adviceguide.org.uk
Telephone advice line: 0844 4111303

Remember Citizens Advice is Sound Advice

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