Retire early? 55 is the pension highway legal limitPosted by Andrew Stallard
Andrew Stallard thinks creatively about early retirement and how to afford it.
With the state retirement age galloping towards 70 faster than a Findus lasagne, it is worth noting that there are ways to access your personal pension at 55 - but there are a lot of 'buts'.
The dream of full retirement at 55 may be out of reach for most of us. However, a 4 day week at 55 with lost income being replaced from a pension may, with proper planning, be an achievable dream. At 55 it is possible to take 25% of your personal pension as a tax free lump sum and with the option to take an income then or later with the remainder.
BUT remember - any money you take out of your pension at 55 will not be there to grow and provide a greater sum in old age.
For us younger advisers at Worldwide Financial Planning 55 still seems a long way off, but be very wary if you are offered access to your pension fund before that age. We have had several calls from clients asking for our opinion on these schemes. Some have had unsolicited telephone calls, emails and text messages offering the tempting prospect of access to their pension before they reach 55. It's an old adage, but when someone offers you a deal too good to be true, it usually is; and there is no difference with this latest con trick.
Our advice is to avoid at all costs because the cost could be very high indeed to you.
You cannot legally access your pension before 55 except in very exceptional circumstances such as terminal illness. However in these hard economic times many people have been tempted and already lost their pensions in schemes that have spirited away £400 million to illegal pension liberation companies since 2008.
The scam being offered by pensions liberation companies threatens to destroy the retirement dreams of many, leaving them to rely solely on the state pension alone - set to be £144 a week from 2017.
There are legal pension unlocking schemes available to people over 55, but these are not suitable for many people and taking independent professional advice is strongly advised.
Pension liberation companies typically target people in debt, made redundant or recently made bankrupt and offer them access to their pension as a way out of their financial difficulties. At best they may receive a small fraction of their pension’s value but more importantly the huge loss of the future pension's value will making retirement even more of a struggle.
How does it work? The pension liberation company will offer to transfer your pension offshore, supposedly out of the control of HMRC. Once your money is transferred - usually at very high cost with the charges hidden and taken from your fund - they then set up a loan, again at huge cost with your pension fund as the security for the loan. But as they already control your pension fund, what can the risk be to them?
The investments they make with your pension are usually high risk and crucially out of the protection of the financial services compensation scheme. If the investments fail there is no redress and you may lose all of your money.
So, already there are huge charges and unregulated investments… and it gets worse. You may then face an unauthorised payment charge from HMRC because you have illegally accessed your pension before 55. These can be between 55% and 70% of the loan you have taken out against your pension.
Remember if you need help rearranging your pension, use a reputable independent financial adviser and check their Financial Services Authority number with the regulator. Worldwide Financial Planning's FSA number is 440668
In our view the government has been too slow to act with legislation outlawing these transfers. If you are approached by a pension liberation company, telephone Action Fraud on 0300 123 2040 or check these two sites:
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