Perhaps you’ve had a flyer pushed through the letterbox? Or a phone call from a third-party company? Someone who claims you can ‘sell’ your pension – and take a big, cash lump sum from your pension pot. But is it actually true? Here we take a look at the circumstances under which you can legitimately sell your pension and advise how to avoid potential scams.
Selling your pension: it’s all about age
In 2015, there was a change in pension rules that gave people greater access to their pension pot. Essentially, from the age of 55, you’re now entitled to access as much of your pension money as you like – whenever you like. The first 25% is completely tax-free (known as the Pension Commencement Lump Sum, PCLS) and, following this, any further withdrawals are taxed at a normal rate.
The key point to note is that you must be aged 55 or over. Although selling your pension before this age is not illegal, in most cases, it’s highly unadvisable. This is for a number of reasons:
1. The company is unlikely to be regulated
Most companies offering to sell your pension (i.e. pension liberation or pension release) under the cut-off age are not authorised by the Financial Conduct Authority (FCA). Any advice and guidance they provide is unregulated and therefore if something were to go wrong, you wouldn’t be protected.
2. Substantial third-party charges
Most third-party companies will charge up to 30% for acting on your behalf. To put this into perspective, for every £100,000 that you withdraw, they would take up to £30,000 for themselves.
3. You’ll be hit with a massive tax bill
In the eyes of HMRC, any cash taken from a pension pot (before the age of 55) is seen as an unauthorised payment. This means that you will be taxed by 55%. Even if you were unaware of the tax rules or have spent the full sum of money, you will still be expected to pay this bill.
4. Any left-over cash will be invested at high risk
As part of a pension liberation scheme, any money left in your pension pot – after you have taken the cash lump sum – is reinvested. Nine times out ten, these investments are high risk and unregulated. They may even be based overseas and there’s a chance you could lose all of your money.
Are there any circumstances where it’s ok to sell your pension?
Under the age of 55, there are just two scenarios in which it’s ok to sell your pension:
1. If you have a serious illness
For anyone diagnosed with a serious or terminal illness, retirement is often recommended – and you’re entitled to sell your pension early. In this situation, you wouldn’t be taxed at 55% and there would be no need to pay for the services of a third-party company. Just get in touch with your pension provider. They will sort everything on your behalf and most don’t charge a penny.
2. If you have a ‘protected retirement’ date
These are typically associated with professions that have an early retirement (e.g. a professional sportsperson, military personnel etc). If you have one, it will be specified in the pension plan – allowing you to sell your pension before the age of 55, without any of the drawbacks outlined above.
Be wary of pension liberation scammers
As a general rule, companies that offer pension liberation can’t be trusted. They’re unlikely to be authorised by the FCA and, before you sign on the dotted line, it’s always worth seeking independent advice on the matter. This advice is offered for free by The Pensions Advisory Service and Pension Wise – so why not get in touch and take advantage of their expertise?
If you think you have been misadvised to sell your pension, you may also be entitled to make a claim. This can be made for free via the Financial Services Compensation Scheme, the Financial Ombudsman Service, The Pensions Ombudsman or directly to the person to which your claim relates. If you have it, you can claim on your personal insurance for financial mis-selling. Or, alternatively, you can choose to seek the help of our experts – here at Money and Me Claims.
We’re highly experienced and knowledgeable in this area. Not only can we offer information on pension liberation and mis-sold pensions, but we can also advise on your eligibility to claim – and take care of the full claims process on your behalf. If there’s no case or the case is unsuccessful, you pay nothing. If you win, we charge a small fee of 25% + VAT (or if you cancel after the 14-day cooling-off period we will charge for any work already done). It’s as simple as that. Either give us a call on 01236 607952 or fill out our online contact form and we’ll get back to you.
Money and Me Claims is a claims management company authorised and regulated by the Financial Conduct Authority. FRN 834307.