Converting a pension into cash might sound very attractive if you urgently need money, however, if something sounds too good to be true, it normally is.

There are a number of companies making unsolicited texts and phone calls offering to release cash from your pension fund before aged 55 – if you are contacted, there’s a good chance that someone is trying to scam you out of a significant part of your pension fund.

The scam starts with the company suggesting that you transfer the money from your pension fund into one of their investment schemes (which are usually risky and unregulated overseas investments) or take out a loan and secure it against your retirement fund; this is known as Pension Liberation.

Pension liberation can be illegal where you are misled about key consequences of entering into one of these arrangements. This could be because you are not informed of the tax consequences, fees involved or how the remainder of the pension fund is invested.

The risks of Pension Liberation include:

A poorer retirement

• You can only use your pension fund once. If you liberate your pension, there will be much less (or no) income from it when you retire.

High fees

• As part of the liberation transaction, you will probably have to pay the organisers a ‘commission’ or ‘arrangement fee’ and these can typically range from 10 – 30%.

Tax Implications

• You may not be informed or misled as to huge tax consequences of making such a transfer.

Significant charges by HMRC

• If you have liberated your pension, you will need to tell HMRC and you will have to pay tax. If you fail to tell HMRC and HMRC contacts you first, you may be charged penalties and interest in addition to the tax.

HMRC restrict normal access to pension funds until you reach your 55th birthday – it is possible at this time to release up to 25% of your pension fund tax free, however accessing your pension before you retire is likely to result in a lower level of income in retirement. For the vast majority, releasing cash before you retire is not an appropriate or suitable solution.

We would always recommend that you receive professional advice from an FCA authorised firm such as Cullen’s regarding all of your financial planning needs.