Early Pension Access

amillionlittlepieces

I have been reading about the Pension Liberation Scams and wondered if there were any options for releasing pension early.

If I planned on retiring early, at say 50, then my pension would be tied up for 5 years with me not being able to access it. Is this correct? Is there any way of drawing down on the monies? I know nothing about pensions so any help is much appreciated.

Credit-Crunched

amillionlittlepieces wrote: »

I have been reading about the Pension Liberation Scams and wondered if there were any options for releasing pension early.

If I planned on retiring early, at say 50, then my pension would be tied up for 5 years with me not being able to access it. Is this correct? Is there any way of drawing down on the monies? I know nothing about pensions so any help is much appreciated.

One can technically retire at any time, I could end work tomorrow at the age of 37. If I could afford it, is another matter. Also, my access to state benefits and private pension provision is age dependent.

The accessing of a pension before the age of 55 comes with a tax charge of 55%, plus the strong possibility of losing the rest due to the nature of the 'investments' it is placed in.

Approach any company that cold calls, promises guaranteed returns etc with extreme caution.

Silvertabby

Anyone who tells you that you can access your pension before 55 'due to a legal loophole' is a liar and a thief.

atush

No, you cannot legally access your pension before age 55. unless you are of ill health and likely to die in the next 12 months,

How you retire before the age of 55, is to boost savings and invesstments outside of pensions esp using S&S isas. And also make sure you have enough extra to pay off any mtg on your home.

Malthusian

Credit-Crunched wrote: »

The accessing of a pension before the age of 55 comes with a tax charge of 55%

This is true in a sense but leads people to think that they can access their pension early if they don't mind losing 55% of it. (Obviously for most sensible people this is quite bad enough, but you do occasionally see people claiming they are "desperate".)

This is not the case. In addition to the 55% charge on the member, the scheme has to pay a scheme sanction charge of 25% (more if you don't pay your 55%). So does that mean you could still access your pension early if you're willing to forfeit 80% and pay the scheme sanction charge as well? No, because if the pension scheme made a habit of making unauthorised payments, HMRC could deregister it as a pension scheme, which means the scheme would have to pay HMRC 40% of all its assets and all the other members and the pension trustees would be completely screwed.

This means that no legitimate pension scheme will allow you to withdraw funds below 55, under any circumstances (except for ill-health exemptions and protected pension ages). Any scheme that would allow it is a scam. Scammers will take your entire pension fund and you would pay a 55% tax charge on any bones they threw you.

As others have said, if you want to retire before 55 you use ISAs and other funds outside a pension.

greenglide

Certain pension schemes still have a scheme age of 50 although these are rare these days.

jennyjj

Malthusian wrote: »

Scammers will take your entire pension fund and you would pay a 55% tax charge on any bones they threw you.

Actually, I think it's worse. The scammers can run off with all of the money and you STILL owe HMRC a big tax bill.

Credit-Crunched

Malthusian wrote: »

This is true in a sense but leads people to think that they can access their pension early if they don't mind losing 55% of it. (Obviously for most sensible people this is quite bad enough, but you do occasionally see people claiming they are "desperate".)

This is not the case. In addition to the 55% charge on the member, the scheme has to pay a scheme sanction charge of 25% (more if you don't pay your 55%). So does that mean you could still access your pension early if you're willing to forfeit 80% and pay the scheme sanction charge as well? No, because if the pension scheme made a habit of making unauthorised payments, HMRC could deregister it as a pension scheme, which means the scheme would have to pay HMRC 40% of all its assets and all the other members and the pension trustees would be completely screwed.

This means that no legitimate pension scheme will allow you to withdraw funds below 55, under any circumstances (except for ill-health exemptions and protected pension ages). Any scheme that would allow it is a scam. Scammers will take your entire pension fund and you would pay a 55% tax charge on any bones they threw you.

As others have said, if you want to retire before 55 you use ISAs and other funds outside a pension.

Thanks for putting the meat on the bones and clarifying the main points.

amillionlittlepieces

Thanks all for your responses. It's as I suspected. I was just hoping to find a way of funnelling money pre-tax into savings now that I could draw down on earlier than 50.

Malthusian

amillionlittlepieces wrote: »

Thanks all for your responses. It's as I suspected. I was just hoping to find a way of funnelling money pre-tax into savings now that I could draw down on earlier than 50.

Marry someone 5 years older than you and put money into their pension.

kidmugsy

Credit-Crunched wrote: »

Approach any company that cold calls, promises guaranteed returns etc with extreme caution.

On the contrary, approach it with a machine gun and a flame thrower.