What is Pension Liberation?
Early Pension Release, or Pension Liberation, refers to the process of accessing your pension before the age of 55 years old.
Unlike ISAs, or regular bank offered savings accounts, pensions are long term savings vehicles, designed to be accessed only after the age of 55. Accessing your pension before the age of 55 could result in high charges involving taxation, fees from your pension provider, fees from unscrupulous companies who encourage early pension access or from another source.
The reasons for placing an age limit on pension access
The reasons behind the 55 year limit on pensions is relatively simple: pensions are meant to be long-term savings vehicles to allow you to save for your retirement. If you need more flexible access to funds then an ISA, or another form of savings account, is much more appropriate. Accessing pension savings before they have reached maturity has the potential to do two things:
- Limit the return on your investments (which will have been placed originally with the long term in mind).
- Leave your retirement under-funded or, worse, with no funds whatsoever.
Companies expect you to leave your savings in your pension until you are at least 55 years old and therefore withdrawing from a pension before then can be seen as an ‘unauthorised payment’, which is where the big fees and taxation can come in! More than that, because of the rules surrounding pensions, pension liberation can in some cases be illegal.
The 2014/2015 pension freedoms and early pension release
During the 2014 Budget, the Chancellor, George Osborne, announced new freedoms for pensions. These freedoms are important, as they change the way that you can access your pension. However, as far as accessing your pensions before you are 55 is concerned there was no change. Accessing your pension before the age of 55 is still against the rules and could lead to the aforementioned high charges. The new pension freedoms are not a way to get access to your pension early, simply a more flexible way to withdraw your pension at age 55 or later.
Alternatives to early pension release
If you are considering trying to access your pension before you are 55 then we highly recommend that you get in touch with us. Whatever your reasons for wanting access to your funds, we may be able to suggest some alternatives and to talk you through exactly what you are putting at risk by withdrawing from your pension before you are 55.
If you are concerned that your current pension is not right for you then we will be able to talk through your options for transferring your pension with you, which could put you in a better situation come retirement but does not involve accessing the funds early.
Whatever your concerns at the moment, we cannot emphasise enough that pension liberation pre-55 years old is almost always a bad idea: please do get in touch with us before you agree to such a move.
What to do if you have been approached or agreed to early pension release
If you have been approached by a pension liberation company, promising access to your pension before the age of 55, then we would recommend several steps:
- Do not pass on any more of your personal data than they already have and immediately cease all communication with the company;
- Contact The Pension Regulator
- Contact ourselves for independent advice on both your circumstances, your pension and any advice offered by the liberation company.