Baby Boomers Beware

The future is the indefinite time after the present. It is reasonable to assume that its arrival is inevitable because of the existence of time and the laws of physics. Planning for it is therefore

  • important because the future is unavoidable and
  • difficult because no one can say with absolute certainty what the future will hold.

Take pension planning for example. The government encourages us to save for our retirement by giving tax concessions related to pension contributions. If you have savings in a pension pot to take care of the future, when you retire you can take a tax free lump sum from your pension fund (usually up to 25% of its value) and invest the remainder to provide you with an income. If you have debts to deal with today, the possibility of a legal loophole which enables you to get your hands on your pension before you are 55 and to convert it in to a loan may be tempting. You may be approached by a firm offering to exploit such a loophole. However, beware! There is no loophole. It is a scam known as pension liberation fraud. The scammers often target people likely to be short of cash, for example those with a poor credit history.

All pension schemes have rules about when you can start to take your pension and it is usually not before you are at least 55. (There are a small number of exceptions – for example if you are terminally ill). Early withdrawals from a pension, that is before the age specified in the rules constitute unauthorised payments which are liable for 55% tax. You also won’t be able to take a tax-free lump sum because you would have benefited from tax relief on your pension contributions on the basis that you were providing for your retirement.

How the scam works

  • you are offered cash incentives or loans to transfer your pension fund to another pension scheme, which may be abroad
  • the scammers take a large fee as their cut and tell you there’s nothing to worry about

Her Majesty’s Revenue and Customs (HMRC) works extremely closely with partner agencies and other regulatory bodies to detect disrupt and deter pension liberation activity. It’s always you who will be liable to pay the tax and not the firm or the special adviser with whom you dealt.

The same rules apply if you pursue this course of action of your own volition without a scammer being involved. You’ll usually get much less than if you had left it invested till your normal retirement age, which is usually 60-65 and your entitlement to state benefits could be affected. You should always get independent financial advice first if you’re thinking of taking any part of your pension before you’re 60-65.

You can find useful information about what happens if you draw on your pension early on the HMRC website at There is also a very helpful leaflet called Predators stalk your pension on the Pensions Advisory Service website at


Share this article