Pension scams

Drawing your pension

In respect of pension withdrawals, perhaps the most important condition is that normally you cannot withdraw any money from your pension fund before you reach the normal minimum pension age. This is currently age 55 but is going to rise to age 57 from 6 April 2028. If you withdraw money from your pension fund before you reach the normal minimum pension age, this might be considered an ‘unauthorised payment’. Such an unauthorised payment is subject to a large tax charge.

Most reputable pension schemes will not allow you to make an early withdrawal. If someone or an organisation offers you the chance to withdraw money early, it is likely to be a scam. You may lose part of your pension fund, as well as having to pay tax charges.

When you are allowed to take money from your pension fund early

There are some exceptions to the general rule about taking money from your pension fund before you reach the normal minimum pension age (currently age 55).

We have more detail about these exceptions in our guidance on pension withdrawals.

If you think any of the exceptions or exemptions might apply in your case, check the position with your pension provider.

How pension scams work

There are people and organisations who might suggest that you can take money from your pension fund early. These are likely to be running an early pension release scam. Such scams may be presented as offering pension liberation or a pension loan.

They may encourage you to transfer your pension into a different pension scheme that allows unauthorised payments, for example a scheme based overseas. They may offer cash incentives or suggest the withdrawal is a personal loan. They are also likely to suggest that there is a legal loophole meaning that there will be no tax to pay.

If you draw money out under one of these arrangements, HMRC would view this as an unauthorised payment. Unauthorised payments result in large tax charges.

The organisation that arranges the transfer is likely to charge you a high fee too.

This means that after the tax charges and fee, you end up with very little of the total withdrawal.

Tax charges on unauthorised payments from your pension

If you make a withdrawal from your pension that is an unauthorised payment, you will face one or two separate charges, depending on the proportion of the fund you withdraw:

• The unauthorised payments charge is 40% of the total value that you withdraw. You have to pay this on any unauthorised payment.
• The unauthorised payments surcharge is 15% of the total value that you withdraw. You pay this on any unauthorised payments that total 25% or more of your pension fund in a year.

This means that if your unauthorised payments amount to 25% or more of your pension fund in a single year, you will pay an overall tax charge at the rate of 55% of the unauthorised payment (40% plus 15%). You can read about these charges on GOV.UK.

How to check if it is a scam

You should always be wary if someone contacts you uninvited about your pension, particularly if they are offering free advice or suggesting you could access your money early.

Also be careful if the returns being offered on any investment seem much more attractive than are being offered elsewhere or if the plan is to move your pension funds overseas.

Read the descriptions of various scams on the MoneyHelper website. You should also check that the person or organisation advising you is properly regulated as this gives you some protection if things go wrong. You can check them out on the website of the Financial Conduct Authority.

Action to take if you are a victim of a scam

If you have agreed to a pension transfer and withdrawal, but it has not yet gone through, contact your pension scheme as a matter of urgency. Ask them not to make the transfer.

Follow the guidance on the Financial Conduct Authority website, which sets out how you can report a pension scam.

Getting your money back

Unfortunately, if you have lost money because of a pension liberation scam, it may not be possible to get your money back or get any compensation.

If you have been a victim of a scam, MoneyHelper offer the opportunity to speak to a pensions specialist. They can talk to you about various matters, including rebuilding your pension funds.

More information

When it comes to pensions and accessing your private pension pot, taking professional advice is essential. An Independent Financial Advisor (IFA) can provide tailored advice about pensions and withdrawals. You can read more about finding an IFA on the MoneyHelper website. They also give information on financial advisers’ fees.

MoneyHelper runs the Pension Wise service for people aged 50 or over. Through Pension Wise you can arrange a free 60-minute consultation with a pension specialist to discuss your situation. Consultations are usually over the telephone, but they do offer a limited number of face-to-face appointments. We recommend that you consider making an appointment with Pension Wise before making any withdrawals from your pension pot.

Free information and guidance about pensions is available on the government run MoneyHelper website. We also have information about the taxation of pensions on the section of our website dedicated to Pensions.

HMRC’s guidance on unauthorised payments is on GOV.UK.

If you are unsure how your tax and/or benefits position might be affected by any withdrawals from your pension, we would recommend taking separate advice from a tax adviser or welfare rights adviser. You can find details about these (including the tax charities, who may be able to provide free tax advice if you are on a low income) on our Getting help with tax pages.