FAQs: Pension releases


What is the pension?

The pension is the money that supports people when they are retired. Pension funds are accumulated through national insurance contributions and/or through workplace and personal pension schemes. Pensions are paid out once the person reaches retirement age.

What are pension releases?

Pension releases involved taking a tax free lump sum payment out of your pension fund before you have retired. Pension release is also sometimes referred to as ‘pension unlocking’ or ‘pension liberation’. Under most pension schemes people over the age of 60 may take up to 25% of their pension fund as a tax free lump sum pension commencement lump sum. The funds are transferred to a new pension arrangement from which they can release their money.

Why do people use pension releases?

Some people may elect to access a pension release if they are in financial difficulties. Other people use pension releases in order to contribute towards major investments, such as purchasing or renovating property.

What are the consequences of pension releases?

Pension releases are not generally advisable for the majority of people or circumstances. Usually, the amount of cash you receive in a pension release is far less than the amount you would receive over time if you waited to receive the payments in retirement. Additionally, any benefits that you receive which are means tested may be affected by the additional funds gained from the pension release.

Are pension releases regulated?

There are many companies offering services of pension releases. Some of these companies are unscrupulous and offer pension releases with high risks and costs. The Financial Services Authority, the regulator of the financial services industry in the UK, has issued some warnings about these schemes. Some of the things to look out for include:

  • Commissions charged by the company
  • Tax charges for unauthorised payments from workplace or personal pensions
  • The nature of alternative investment schemes offered by the company
  • Scams

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