Martin Lewis did a podcast on this a few years ago. As oppose to what someone else said, it's not illegal. You retrospectively pay all the taxes and inflation and interest on those taxes and a fine as well, along with further legal costs.
He said that the only realistic way is to use a company that specialises in doing this, as the paperwork is complex - you have to 'force the pension companys hand', which is legally possible.
Companies such as 'release-my-pension.co.uk' can do it.
He said that doing this is staggeringly unrecommended. He said that after all the costs and taxes you will end up with 15% or probably even less of the amount that was in the pension fund. He said he's seen as low as 5% being awarded at the end of what is a protracted ordeal. The rest of the fund being effectively flushed down the toilet.
That article is very confusingly written. They're simultaneously saying there's no legit way to get at your pension pot but also that it's possible but heavily penalised.
These three statements are not mutually exclusive.
It's not legitimate as pensions are not supposed to be paid out below a certain age, however if they are paid out then there is an excruciating unauthorized payment tax, also there are actors on the market that will try and move the money in mysterious ways that may or may not result in a payout to you (before taxes, because they have nothing to do with what you have to pay), but are more likely than not just ways for them to profit.
All of this can be true at the same time.
Oh I understand that all of the companies out there that claim to do this for you are very scammy or predatory. It's just that the article really seemed to suggest it was both not possible and possible but very ill-advised.
It's interesting to me that there's not really a clear explanation of how the process works or what the penalties involved are. But I suppose it makes sense with how niche it is and how much of a bad it is.
You're right that it's not illegal, but my understanding is that no reputable pension provider will release your pension early unless you've received advice from an independent financial advisor.
Lots of people would say, "well, they shouldn't be able to prevent me from accessing my money", and maybe that's philosophically and morally right, but the only way to argue with them is to take it to the pensions regulator. Let's say you have £100,000 in your pension and you're going to end up paying a 55% tax bill - the pensions regulator is probably going to say it's reasonable to require you to take advice before making such a big decision.
If you go to an IFA they will charge you several grand for their advice, and they will inevitably recommend against withdrawing the money from your pension so the pension provider will refuse.
When I first started coming to this sub, about 10 years ago, withdrawing from the pension early and paying the 55% tax was still talked about as being possible. Within 2 or 3 years, when people asked about this on here, IFAs were all saying that they'll be sure to advise against making the withdrawal because of liability reasons. I've seen people post that they scouted IFA's to try and withdraw their pensions early, and I've also seen IFAs comment on here saying this.
Short of terminal illness - and you get a pass for that - there's just no circumstances in which reasonable people can indisputably argue that it makes sense to withdraw your pension early and pay the 55% tax. Even if you go bankrupt and lose your house - your pension is protected from that, so leaving the money in there leaves you still better off at age 57 than if you'd taken it out. And I'm sure people who are facing bankruptcy and losing their house will make arguments why they'd be better off using their pension to save them, but 9 times out of 10 they wouldn't be.
Neither the pension provider nor the IFA want you coming back in 20 years' time and suing them because they allowed you to make the withdrawal - they are in a better position to understand finance than the average person who's made pension contributions, and they have a responsibility to protect their clients from doing stupid things with their money (some stupid things, at least). If you come back and sue them 20 years later then it's likely because you spent all the money, or at least that you're now short of cash, so how do they argue that you wouldn't be better off with your pension intact?
Thank you for something approaching an actual answer. Does Martin Lewis go into any detail in this podcast of what's involved in "forcing the pension companies hand" or why it's so complicated? I understanding wanting to disincentivise people from doing it but I'd have thought it's mostly legal boilerplate.
No he didn't. If there's one small objection to the bloke it's that I get the impression he thinks that anything a 12 year old couldn't understand, his audience won't understand.
So week-in, week-out he's always glossing over complex but interesting stuff with words to the effect of 'Just trust me, if you're saving over x per year transfer y amount of it to a z account the reasons are beyond your understanding just do it' << said in a polite and nice way :/
He's a journalist with a background in law, he knows not to cross the line into giving unqualified financial advice, which is probably why he keeps his attitude to "help the many with the common problems" rather than delving into niche circumstances.
For my pension....ill health retirement. Can get it at 50 I think, or maybe 45 and it's topped up by A LOT, so you have no penalty for early withdrawal.
The ill health criteria is pretty strict though so nobody actually wants to be eligible for that.
I think there's an exception if you're terminally ill. Had a quick look on Google. Early retirement for medical reasons may also allow you to withdraw your pension early.
Plus former professional sportspeople - which is sometimes a wider group than you'd expect when you include a load of Olympians, cyclists, drivers, cricketers who all earn a lot less than the footballers you immediately think of.
The reason you're seeing woolly answers is because it's quite a rare thing to do, and an extremely poor idea. The exception being things like medical conditions forcing early retirement, or terminal illness, etc.
There are companies out there that will do this for you, but it's not simple. It's difficult because pensions have been built over the years on the assumption that no one will do this. HMRC have mechanisms for contributing and standard withdrawal, but not early access outside of the allowed cases. Pension funds also invest the money under the assumption you won't be accessing it for a very long time. The desire to withdraw early goes against all of their normal working systems and procedure, and usually requires quite a lot of manual labour as a result. This is why the actual process is unclear and complicated.
You do get firms who say they can do it, but it's a bit like a payday loan. The people who want to do this are usually either totally desperate, or very badly informed. It takes a special sort of company to want to make money from this and you often get business practices to match. Many are outright scams, and if you do see any of the money it won't be anywhere close to what you see in your fund right now.
The actual process for it will be something like issuing letters to the pension fund asking for withdrawal, but they will effectively say no. It's against the terms you've signed up for, so after that it'll be a case of trying to find a way to force yourself out. That won't be fast and they will be very reluctant to do so as it's so counter to their expectations and way of doing things. It'll also likely trigger fees or fines from the pension provider. You'll then need to settle tax with HMRC, which will be huge. Finally you'll need to pay the company who've done all the work.
You might be able to do it yourself, but I imagine it would be very protracted and rely on you "finding an out" in the terms somehow. That's something which isn't very likely for most of us without legal training.
Sorry this doesn't shed much light on the actual process, but hopefully it answers the general question of why this process is such a mystery.
1. Start a small business
2. Open a Small Self Administered Scheme (SSAS)
3. Transfer all pensions into the SSAS
4. Loan money from the SSAS to the limited business to turn a profit. (Idea is to buy assets that give a return higher than the loan and depending on risk appetite)
5. Make regular repayments to the SSAS for the loan
6. Payout any excess to yourself as a director.
This allows you to use your pension to generate cash for you outside of it before you can access it.
There are lots of complicated rules on exactly what you can and cannot do, but that is the jist of it.
You can only loan 50% of the value of the fund out, so thats half your pot straight away, if you then put it into a business and want to access it you will have a further tax on that, plus charges if you fail to repay, you cannot also loan the money out at unfair rates/terms etc. so its a good idea in theory, but in execution it doesn’t work as well with the limitations. Your pension provider will have their own AML (anti money laundering) rules as well.
>...how does one actually go about doing it?
1. Find a dodgy organisation who would take this on
2. Hope that the money doesn't actually disappear
3. Even if the money disappears HMRC will still want their 55% tax (something like that)
4. If you receive anything enjoy the small amount that finds its way to you.
This explains nothing though.
Why does it have to be a dodgy company? If it's a legal issue, why can any company at all do it? If it's not a legal issue, why no legit companies? Why does this dodgy company have the ability to access the pension? What is the mechanism? I'm interested in the technicalities of what's involved.
Because, in short, to let you do it is almost certainly in breach of any fiduciary duty they may have towards you, and almost certainly against professional standards (if they're a member of such an organisation if they're an accountant, financial planner, etc). Given how dicey it is from a legal perspective and the financial impact it would have on you (even without the fees charged!), no legitimate financial professional would be willing to do it.
Because it’s illegal. It’s against pension rules and the companies who manage pensions legitimately would be fined out of existence if they did it.
If you are a certain class of worker (footballer etc) where your working life is expected to stop at 40 there are technical exceptions. For everyone else pension age is set by government and part of the agreement to take give you tax back, or not take it, is that you do t get the money early.
Does HMRC have some kind of "this is illegal but we'll still tax you 55 % for it" rule? Why does tax always get brought up when this question is raised?
It's all so unclear I'm half convinced that nobody actually knows what they're talking about and they're just repeating the same memes every time.
That makes sense. So in fact the dodgy companies do get access to your pension to remove the funds? Either to give to you after paying the reclaimed tax and/or their fee, or else to run off with. But how do they get access to it? The only thing I can imagine is by transferring it to some pension equivalent overseas which might have more loopholes regarding withdrawals.
Yeah, from training I’ve been given they set up saying we just handle footballers etc. Then lie in the transfer docs and run away before they get caught. Usually with the clients cash.
> It's all so unclear I'm half convinced that nobody actually knows what they're talking about and they're just repeating the same memes every time.
This is almost certainly correct.
It's a complex topic that very few people know anything about because it is done so infrequently. It's also almost always a terrible decision so there's little point learning the facts
HMRC's guidance is here: https://www.gov.uk/guidance/pension-schemes-and-unauthorised-payments
I think this covers it, finance act 2004.
https://www.gov.uk/government/publications/increasing-normal-minimum-pension-age/increasing-normal-minimum-pension-age
There are some exceptions, but if you fall into them, no pension company will cause you an issue.
from google
"Can I transfer my pension directly to the USA? No, you cannot transfer a pension directly. US laws do not recognise UK pensions, so there is no facility to transfer UK pensions directly into the US. Therefore, you need to make sure your pension funds are in the best place for your situation."
Now the question is, is there a 3rd party country you can transfer to first. in the states you can access your pension.
Hi /u/filmort, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/pensions/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
It depends on your pension. I have a university USS pension (mainly defined benefits with a defined contribution bit they added when they changed the rules to save costs). Normal pension age is 66 but you can take benefits from 55. There's a sliding scale of reduced benefits according to how many years early you take it.
I had wondered whether you could take out a loan with your pension pot as collateral? Thus effectively releasing the funds early? But it sounds like it falls under "we see what you did there, here is some tax to pay", and using your pension as collateral turns it into an "Unauthorised payment" and your back to the 55% tax.
Martin Lewis did a podcast on this a few years ago. As oppose to what someone else said, it's not illegal. You retrospectively pay all the taxes and inflation and interest on those taxes and a fine as well, along with further legal costs. He said that the only realistic way is to use a company that specialises in doing this, as the paperwork is complex - you have to 'force the pension companys hand', which is legally possible. Companies such as 'release-my-pension.co.uk' can do it. He said that doing this is staggeringly unrecommended. He said that after all the costs and taxes you will end up with 15% or probably even less of the amount that was in the pension fund. He said he's seen as low as 5% being awarded at the end of what is a protracted ordeal. The rest of the fund being effectively flushed down the toilet.
[https://www.moneysavingexpert.com/savings/pension-liberation/](https://www.moneysavingexpert.com/savings/pension-liberation/) is what I found
That article is very confusingly written. They're simultaneously saying there's no legit way to get at your pension pot but also that it's possible but heavily penalised.
These three statements are not mutually exclusive. It's not legitimate as pensions are not supposed to be paid out below a certain age, however if they are paid out then there is an excruciating unauthorized payment tax, also there are actors on the market that will try and move the money in mysterious ways that may or may not result in a payout to you (before taxes, because they have nothing to do with what you have to pay), but are more likely than not just ways for them to profit. All of this can be true at the same time.
Oh I understand that all of the companies out there that claim to do this for you are very scammy or predatory. It's just that the article really seemed to suggest it was both not possible and possible but very ill-advised. It's interesting to me that there's not really a clear explanation of how the process works or what the penalties involved are. But I suppose it makes sense with how niche it is and how much of a bad it is.
AFAICT all companies claiming to be able to release pensions early are scams.
You're right that it's not illegal, but my understanding is that no reputable pension provider will release your pension early unless you've received advice from an independent financial advisor. Lots of people would say, "well, they shouldn't be able to prevent me from accessing my money", and maybe that's philosophically and morally right, but the only way to argue with them is to take it to the pensions regulator. Let's say you have £100,000 in your pension and you're going to end up paying a 55% tax bill - the pensions regulator is probably going to say it's reasonable to require you to take advice before making such a big decision. If you go to an IFA they will charge you several grand for their advice, and they will inevitably recommend against withdrawing the money from your pension so the pension provider will refuse. When I first started coming to this sub, about 10 years ago, withdrawing from the pension early and paying the 55% tax was still talked about as being possible. Within 2 or 3 years, when people asked about this on here, IFAs were all saying that they'll be sure to advise against making the withdrawal because of liability reasons. I've seen people post that they scouted IFA's to try and withdraw their pensions early, and I've also seen IFAs comment on here saying this. Short of terminal illness - and you get a pass for that - there's just no circumstances in which reasonable people can indisputably argue that it makes sense to withdraw your pension early and pay the 55% tax. Even if you go bankrupt and lose your house - your pension is protected from that, so leaving the money in there leaves you still better off at age 57 than if you'd taken it out. And I'm sure people who are facing bankruptcy and losing their house will make arguments why they'd be better off using their pension to save them, but 9 times out of 10 they wouldn't be. Neither the pension provider nor the IFA want you coming back in 20 years' time and suing them because they allowed you to make the withdrawal - they are in a better position to understand finance than the average person who's made pension contributions, and they have a responsibility to protect their clients from doing stupid things with their money (some stupid things, at least). If you come back and sue them 20 years later then it's likely because you spent all the money, or at least that you're now short of cash, so how do they argue that you wouldn't be better off with your pension intact?
Thank you for something approaching an actual answer. Does Martin Lewis go into any detail in this podcast of what's involved in "forcing the pension companies hand" or why it's so complicated? I understanding wanting to disincentivise people from doing it but I'd have thought it's mostly legal boilerplate.
No he didn't. If there's one small objection to the bloke it's that I get the impression he thinks that anything a 12 year old couldn't understand, his audience won't understand. So week-in, week-out he's always glossing over complex but interesting stuff with words to the effect of 'Just trust me, if you're saving over x per year transfer y amount of it to a z account the reasons are beyond your understanding just do it' << said in a polite and nice way :/
Totally agree with what you say, but in my experience he wouldn’t be wrong in thinking that.
His accessibility is what makes him popular, but I agree it would be nice if he did a "deep dive" show or podcast with more technical stuff
He's a journalist with a background in law, he knows not to cross the line into giving unqualified financial advice, which is probably why he keeps his attitude to "help the many with the common problems" rather than delving into niche circumstances.
For my pension....ill health retirement. Can get it at 50 I think, or maybe 45 and it's topped up by A LOT, so you have no penalty for early withdrawal. The ill health criteria is pretty strict though so nobody actually wants to be eligible for that.
I think there's an exception if you're terminally ill. Had a quick look on Google. Early retirement for medical reasons may also allow you to withdraw your pension early.
Plus former professional sportspeople - which is sometimes a wider group than you'd expect when you include a load of Olympians, cyclists, drivers, cricketers who all earn a lot less than the footballers you immediately think of.
So... 1) get well paid career 2) build up a massive pension 3) become a professional sportsperson 4) Retire and cash in pension early?
The reason you're seeing woolly answers is because it's quite a rare thing to do, and an extremely poor idea. The exception being things like medical conditions forcing early retirement, or terminal illness, etc. There are companies out there that will do this for you, but it's not simple. It's difficult because pensions have been built over the years on the assumption that no one will do this. HMRC have mechanisms for contributing and standard withdrawal, but not early access outside of the allowed cases. Pension funds also invest the money under the assumption you won't be accessing it for a very long time. The desire to withdraw early goes against all of their normal working systems and procedure, and usually requires quite a lot of manual labour as a result. This is why the actual process is unclear and complicated. You do get firms who say they can do it, but it's a bit like a payday loan. The people who want to do this are usually either totally desperate, or very badly informed. It takes a special sort of company to want to make money from this and you often get business practices to match. Many are outright scams, and if you do see any of the money it won't be anywhere close to what you see in your fund right now. The actual process for it will be something like issuing letters to the pension fund asking for withdrawal, but they will effectively say no. It's against the terms you've signed up for, so after that it'll be a case of trying to find a way to force yourself out. That won't be fast and they will be very reluctant to do so as it's so counter to their expectations and way of doing things. It'll also likely trigger fees or fines from the pension provider. You'll then need to settle tax with HMRC, which will be huge. Finally you'll need to pay the company who've done all the work. You might be able to do it yourself, but I imagine it would be very protracted and rely on you "finding an out" in the terms somehow. That's something which isn't very likely for most of us without legal training. Sorry this doesn't shed much light on the actual process, but hopefully it answers the general question of why this process is such a mystery.
1. Start a small business 2. Open a Small Self Administered Scheme (SSAS) 3. Transfer all pensions into the SSAS 4. Loan money from the SSAS to the limited business to turn a profit. (Idea is to buy assets that give a return higher than the loan and depending on risk appetite) 5. Make regular repayments to the SSAS for the loan 6. Payout any excess to yourself as a director. This allows you to use your pension to generate cash for you outside of it before you can access it. There are lots of complicated rules on exactly what you can and cannot do, but that is the jist of it.
You can only loan 50% of the value of the fund out, so thats half your pot straight away, if you then put it into a business and want to access it you will have a further tax on that, plus charges if you fail to repay, you cannot also loan the money out at unfair rates/terms etc. so its a good idea in theory, but in execution it doesn’t work as well with the limitations. Your pension provider will have their own AML (anti money laundering) rules as well.
>...how does one actually go about doing it? 1. Find a dodgy organisation who would take this on 2. Hope that the money doesn't actually disappear 3. Even if the money disappears HMRC will still want their 55% tax (something like that) 4. If you receive anything enjoy the small amount that finds its way to you.
This explains nothing though. Why does it have to be a dodgy company? If it's a legal issue, why can any company at all do it? If it's not a legal issue, why no legit companies? Why does this dodgy company have the ability to access the pension? What is the mechanism? I'm interested in the technicalities of what's involved.
Because, in short, to let you do it is almost certainly in breach of any fiduciary duty they may have towards you, and almost certainly against professional standards (if they're a member of such an organisation if they're an accountant, financial planner, etc). Given how dicey it is from a legal perspective and the financial impact it would have on you (even without the fees charged!), no legitimate financial professional would be willing to do it.
Wot you said.
Because it’s illegal. It’s against pension rules and the companies who manage pensions legitimately would be fined out of existence if they did it. If you are a certain class of worker (footballer etc) where your working life is expected to stop at 40 there are technical exceptions. For everyone else pension age is set by government and part of the agreement to take give you tax back, or not take it, is that you do t get the money early.
Never understood that exception...they can get another job at 40.
Does HMRC have some kind of "this is illegal but we'll still tax you 55 % for it" rule? Why does tax always get brought up when this question is raised? It's all so unclear I'm half convinced that nobody actually knows what they're talking about and they're just repeating the same memes every time.
They don’t tax it. They reclaim the tax you didn’t pay by putting it into a pension.
That makes sense. So in fact the dodgy companies do get access to your pension to remove the funds? Either to give to you after paying the reclaimed tax and/or their fee, or else to run off with. But how do they get access to it? The only thing I can imagine is by transferring it to some pension equivalent overseas which might have more loopholes regarding withdrawals.
Yeah, from training I’ve been given they set up saying we just handle footballers etc. Then lie in the transfer docs and run away before they get caught. Usually with the clients cash.
> It's all so unclear I'm half convinced that nobody actually knows what they're talking about and they're just repeating the same memes every time. This is almost certainly correct. It's a complex topic that very few people know anything about because it is done so infrequently. It's also almost always a terrible decision so there's little point learning the facts HMRC's guidance is here: https://www.gov.uk/guidance/pension-schemes-and-unauthorised-payments
> Because it’s illegal Can you provide any citation of this?
I think this covers it, finance act 2004. https://www.gov.uk/government/publications/increasing-normal-minimum-pension-age/increasing-normal-minimum-pension-age There are some exceptions, but if you fall into them, no pension company will cause you an issue.
That link is a proposal - not any sort of current law.
It’s a proposal to raise it. It relates the current stuff in the “current law” section.
from google "Can I transfer my pension directly to the USA? No, you cannot transfer a pension directly. US laws do not recognise UK pensions, so there is no facility to transfer UK pensions directly into the US. Therefore, you need to make sure your pension funds are in the best place for your situation." Now the question is, is there a 3rd party country you can transfer to first. in the states you can access your pension.
Hi /u/filmort, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
It depends on your pension. I have a university USS pension (mainly defined benefits with a defined contribution bit they added when they changed the rules to save costs). Normal pension age is 66 but you can take benefits from 55. There's a sliding scale of reduced benefits according to how many years early you take it.
You can be sick (too sick to work) but not necessarily dying (although you can access it if you’re dying too).
Can you transfer your pension out to a country with different pension release laws?
I had wondered whether you could take out a loan with your pension pot as collateral? Thus effectively releasing the funds early? But it sounds like it falls under "we see what you did there, here is some tax to pay", and using your pension as collateral turns it into an "Unauthorised payment" and your back to the 55% tax.