Any scheme which offers money from a pension fund before minimum pension age, or offers more than 25 per cent tax free cash, should ring alarm bells.
Pension liberation schemes sound immensely appealing to those who need quick access to cash. Ultimately, though, pension liberation comes with the potential for the loss of part or all of the members hard earned pension savings.
Any quick financial fix offered by pension liberations ultimately comes at the price of putting your clients at risk of poverty in retirement. The additional tax charges they could be incurred could actually see them more in debt at the end of the day than they started out.
Legislation says that money can only be taken from a pension scheme at minimum pension age, which for most people is 55-years-old.
Rules also state that the maximum tax-free cash that can be taken is 25 per cent and also lays down limits for maximum pension income.
Any cash payment exceeding 25 per cent and any income exceeding the maximum is an ‘un-authorised payment’ and is taxed at 55 per cent.
It is vital that clients contemplating pension liberation know there are alternatives that are less likely to result in their long term detriment.
This guide tackles what is pension liberation, the pros and cons of these schemes, the action being taken by the regulator to crack down on liberators and alternative ways to generate cash quickly.
Contributors of material to this guide are: Helen Dreyfuss, pensions technical specialist of The Pensions Advisory Service (TPAS); James Walsh, policy lead for EU and international at the National Association of Pension Funds (NAPF); Ian Naismith, pensions expert at Scottish Widows; Alistair McQueen, pensions marketing manager at Aviva; David Trenner, technical director of Intelligent Pensions; and Claire Trott, head of technical support at Talbot & Muir.