Individuals are able to transfer their benefits from one pension to another. However, in recent weeks the Pensions Regulator and other bodies have issued guidance warning members about ‘pension liberation fraud’.
Pension scheme rules limit the circumstances in which benefits can be drawn. For example, you cannot normally access your pension before age 55 (other than on grounds of ill-health or protected pension age), cash payments are capped (usually at 25% of fund) and you cannot personally take a loan from your pension savings (although SSASs allow loans to be made to their sponsoring employers provided strict criteria are met).
There are a number of companies that offer large cash sums and other incentives to members who withdraw their pension by transferring to a new scheme either in the UK or overseas. Text messaging, unsolicited phone calls and e-mails may be used to encourage members to participate in such arrangements.
This activity can have serious consequences, including tax consequences. HM Revenue and Customs (HMRC) will tax any cash payments that are paid illegitimately at a rate of 55% of the total value of pension’s savings that are accessed in this way. Once your pension has been transferred it will not be possible to undo the transfer. In addition, large administrative fees may be charged by these companies as a condition for obtaining cash sums. The combination of fees paid and tax charges mean that very little of your pension savings will be left for your future needs.
Further guidance is available from the Pensions Regulator and HMRC.
If you are thinking about transferring your pension you should always take professional advice before doing so.
