Pension Liberation?

Posted by: Swindells FP, on March 22, 2013.

Despite a number of announcements dealing with tax evasion and avoidance in the 2013 Budget, the Government does not appear to have taken any steps to combat the growing number of pension liberation cases.

Andrew Tully, pensions technical director at MGM Advantage said:

‘This appears to be a missed opportunity to clamp down on pension liberation schemes and protect people from massive tax charges. These pension liberation schemes may sound very attractive to people who are in financial hardship. But the possibility is the huge charges imposed by companies and the HMRC tax penalties can wipe out almost the entire fund. If a scheme sounds too good to be true don’t get involved, or at least tread very carefully.’

So what is pension liberation? Pension liberation companies suggest to people that they can access their pension fund at any age. Whereas UK pensions legislation means you normally have to be at least age 55 before you can take benefits, and 75% of the value must normally be taken in the form of an income, with 25% available as a tax-free cash sum.

The pension liberation companies typically charge very substantial fees, between 10% and 30% of the fund value, and usually mean the individual agrees to transfer their existing funds overseas, where amounts should then be paid to them as agreed. But customers do not just risk paying high charges. If HMRC find out that the full fund has been taken before age 55, then they will impose unauthorised payment charges. These mean the individual could be liable for a tax charge of more than half of the fund value. So all of the risk falls on the individual, not the companies running the schemes.

An example:
Mr T has a pension fund worth £50,000 at age 49. A pension liberation company suggests he can access his full fund. The company will charge him £17,500 to arrange this. HMRC find out, and impose a 55% unauthorised payment charge on Mr T, so that is £27,500. After the pension liberation charges and HMRC tax charges, Mr T is left with £5,000.

If Mr T had left his pension fund to grow until age 55 and he achieves an investment return of 5% a year after charges, his pension fund will be worth £67,000. At this point he could have accessed a tax-free lump sum of £16,750 not to mention access to a lifetime income stream.

(Source: MGM Advantage)

If you or anyone you know has been approached by such a liberation company then we strongly suggest that they seek financial advice prior to making any decision on this matter; which is where Swindells Financial Planning can help by offering expert independent pension advice.

For more information on the subject please see the following advice from The Pension Advisory Service here.


Enter your email

Get free investment, pensions and wealth management news and advice.

* indicates required

*We will never share your details with any third party.


Client Stories

Book a consultation

Your Name (required)

Email (required)

Phone Number


Employment Status


What you would like to talk about?


Enter exactly what you see above

Enter your email to receive free relevant news and updates.

* indicates required

*We will never share your details with any third party.

Latest… View all

Putting the current stock market decline in context

There’s no doubt hyperbolic headlines depicting the recent falls on the world’s financial markets are potentially anxiety-inducing. With the FTSE 100 Index falling to its lowest level since April 2017, the effect of the headlines is to promote a sense of uneasiness; we’re here to remind you that this shouldn’t be the case. Instead of […]

Read more →

Inheritance Tax is an avoidable tax

It is often said that Inheritance Tax is an avoidable tax, but many of us somehow fail to avoid it. Why is this? In our experience, clients’ failure to plan effectively is a result of the following perceived problems: Speed – How often will the thought of having to survive 7 years from the date […]

Read more →

What went wrong with the forecasts?

Reading the tea leaves Investors at year-end are inclined to reflect on the 12 months gone and muse on what the coming year might bring. Aware of this appetite for speculation, themedia tends to feed it with forecasts. These articles can be fun to read, but are even more so a year later. In January […]

Read more →

What should investors make of bitcoin mania?

Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios. Cryptocurrencies such as bitcoin emerged only in the past decade. Unlike traditional money, no paper notes or metal coins are involved. No central bank issues the currency, and […]

Read more →