Companies are singling out savers and claiming that they can help you cash in your pension early. If you agree to this you could face a tax bill of more than half your pension savings.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

‘Pension Release’, ‘Pension loans’ or cash incentives are being used alongside misleading information to entice savers to take their pension before they reach their retirement age. This type of activity is known as ‘pension liberation fraud’ and increasing rapidly in the UK.

Beware because the promise of early cash will be fictitious and is likely to result in serious tax consequences. Because of the many tax benefits received when paying into a pension, tax charges of over half the value of your pension will become your responsibility to repay due to you taking an ‘unauthorised payment’ from your pension fund. In addition, fees deducted from your pension for the transfer are unlikely to be recovered. Such fees tend to be very high and could be 20% or more of your pension savings in some cases.

There are certain tax advantages to saving in a pension scheme. These advantages encourage people to save for retirement, and are provided on the condition that pensions aren’t accessed too early. By the time a person reaches retirement it is possible that more than half of their pension fund will be made up of tax relief.

Accessing a pension before age 55 could result in an ‘unauthorised payment’, because the way in which the money is being accessed goes against the reasons for providing tax advantages to pensions in the first place. This is why ‘unauthorised payments’ can attract significant tax charges.