Pension liberation brings anything but freedom

Money in hand The word 'liberation' invokes positive feelings about freedom so it's ironic that pension liberation leaves people in a situation that is far from free.

In fact pension liberation, which is a way of accessing your pension savings before age 55, will actually leave you chained a huge tax bill of up to 55% of your pension pot.

Pension liberation has come under scrutiny thanks to a multi-agency clampdown, court cases, and a 'predators stalk your pension' awareness campaign from regulators warning people about the dangers of pension liberation.

There is plenty of news out there about it and if you Google 'release pension' or some such phrase you will see that HM Revenue & Customs and regulators appear at the top of your search with warning to steer clear of these scheme, but still people use them.

They use them because they are desperate and they use them because they are unaware, or more likely have been mis-led, into thinking that accessing their pension early will have no consequences other than having less cash in retirement.

So what's the solution? There are two ways in which pension liberation could be dealt with. The first would be to make it illegal. Currently it is not illegal to take your pension money early but you must pay a hefty tax penalty for doing so.

The pension liberation scheme transfers your pension to its 'workplace' pension and then gives you a loan but there is no requirement for you to have worked for the company offering the pension or have ever been remunerated by them. If we closed down on this loophole it may help and make it the law that you cannot transfer to a pension scheme unless you have worked for the company.

The second way to deal with it is for HMRC to take control of the situation and allow early access to part of a pension fund. This is an idea that has been bandied around for years as a way to help people on to the property ladder, encourage saving etc. By placing new rules around accessing a percentage of a pension early, for a tax charge because we don't want people to rip all their money out of their pension early, it would prevent people being hoodwinked by unscrupulous companies.

Regulation isn't popular but surely it is the lesser of two evils where pension liberation schemes are concerned.

Seven retirement nightmares

Seven retirement nightmares