Since 2008, the UK Pension Regulator estimates that over £400 million of UK pension savings has been transferred into so called “pension liberation” schemes. This is a dramatic increase from less than £25m in 2010.
Pension liberation (sometimes referred to as a “pension loan” or “cashing out”) involves the transfer of a person’s UK pension savings into an arrangement that will enable them to access their pension savings before the age of 55. Individuals have been increasingly targeted by pension liberation schemes through website marketing, mass cell phone text messaging and cold calls.
Under UK tax rules a person cannot access their UK pension savings until the age of 55, save in rare circumstances such as terminal illness. Pension liberation can, therefore, result in significant UK tax charges and penalties equaling more than half the value of a person’s pension savings.
This year, UK regulators have continued to increase their clamp down on such schemes through a number of avenues including issuing guidance to savers and pension trustees and reviewing the registration processes for UK pension providers. It was reported in July that UK HMRC is preparing to deregister up to 500 “dubious” pension providers. In May this year, the London police also carried out a series of raids on suspected liberation fraud schemes.
Pension liberation should not be confused with the ability for a person to access a 25% cash lump sum from their UK pension or to transfer to a Qualifying Overseas Pension Scheme. Under UK tax rules, a person is permitted to access their cash lump sum from the age of 55.