The term pension release or pension unlocking refers to taking pension benefits before the age of 55. This could be possible in rare cases such as terminal illness. But, promises of early pension release are false and may result in serious tax consequences.
Does taking a pension release early affect your income?
It might not be in your best interests to transfer your pension from a defined benefit scheme. Hence you need to think carefully. By taking your retirement early, the amount will be less than that you could have gotten if wait till the retirement period. In fact, you will have less life when you reach the age of 55.
You need to make a wise decision if pension release is the best for you. You have to look for the right solutions to the following questions before going for the pension release:
What is the amount you will get when you go for the pension as compared to the amount you will get after your retirement?
Do you really need to raise extra amount now?
What is the cost of paying an adviser?
Is there any other way which you can raise the money you require apart from the pension?
By answering the questions above, you will understand the basis of your advice which you get.
How Pension release or unlocking could be a fraud
Some of the pension release schemes can be a fraud when you are misled on the consequences of being part of such arrangements. This will result in tax penalties and charges which are more than half the value of the money which you would have received as your pension savings. Unfortunately, the people who are targeted are usually not informed on the potential tax implications.
How fraudsters target pension transfer offers
Most of the companies in the UK are targeting people who are claiming that they can assist them to get early pension release. The following are some of the things which you need be careful when approach in a similar way:
Unregulated advisers who tells you that they can assist you to access your pension before the retirement age.
When you are approached by unknown company through text
Any reference to overseas investments or creative investments
The risks of early pension release
It sounds very attractive if you get your pension before the age of 55 especially if you urgently need money. However, it is risky. The following are the major risks involved:
You might get poorer during the retirement age
Early pension release enables you to use your retirement once. This will result in much less or low income at the age of 55.
You might be hit unexpectedly with high charges. The pension release charges a fee which ranges from 10 to 30 percent. This is an arrangement fee which is used by the organisers. You might be misled by the consequences of the transfer
Normally, pension release has huge taxes on the income of the individual. Hence, you should be ready to face the consequences of that transfer.
There are significant charges by the customs (HRMC) and HM revenue
When taking cash from your pension, you need to tell the HRMC as well as paying the tax. Failure to inform the HM and HRMC will lead to charging penalties and interests in addition to the tax which you have to pay.
How to get pension release legally
You need to use firms which are registered by the financial conduct authority. This is a financial service regulator which is based in UK. In addition to that, FCA holds a register of all authorized firms who does business in the United Kingdom.
If you want to use your money for your pension to repay your debts, you need to contact a free debt adviser who will enable you to know what you can do. This is normally done by the financial service which is authorized by FCA.
If the authorized adviser is for the pension unlocking scheme, you need to ask them to give you detailed information on the consequences and risks of the pension unlocking. The adviser may be illegal if you are not informed about the risk involved when early pension release is taken.
In conclusion, you need to make a wise decision regarding the pension release scheme. By reading the article above, you can get an idea of how pension release works.
For more information on Pension Investments, contact Pension Performance on 0800 779 7458.