Pension liberation — what you need to know
Pension liberation schemes typically offer cash incentives to members to transfer their pension savings to a scheme from where a cash lump sum representing some or all of the value is ‘unlocked’ and paid to the member. They are not illegal, but sometimes the incentive is offered alongside deliberately misleading and incomplete information about the consequences of taking up the offer, which can be fraudulent. The cash incentives are variously dubbed ‘pensions loans’, ‘savings advances’ and sometimes ‘pensions unlocking’.
The Pensions Regulator reports that since 2008 there has been a significant increase in the number of such arrangements that are being offered. Further, many of the entities offering pension liberation schemes do so by cold-calling members or sending unsolicited text messages or emails, often targeted at people who have already taken short-term and ‘pay-day’ loans.
The providers of these schemes offer to arrange the transfer and payment of a lump sum before the minimum retirement age of 55 in exchange for a fee. Frequently, they promise to do this by transferring the member’s pension from a registered pension arrangement – from which the member could not usually take cash before their minimum retirement age at all because of restrictions in the rules – to another from where some or all of the value of the pension will be released as cash. What the providers often do not explain is why the member cannot take cash from the transferring arrangement, nor do they necessarily explain the tax consequences of taking a lump sum after the pension is transferred…
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