Pension Release schemes offer ways to get cash from your pension before the age of 55. So, what are your options for early pension release?
Note – new products and services are being created frequently at the moment, in the pension loans and pension release markets. We have tried to make this article as accurate as possible, at the time of writing. But, by the time you read it, new options may be available. If you are considering Pension Release or Pension Loans, please use the form to the right to book a free phone call to get the latest, up-to-date options for your individual circumstances.
If you want to release money from your pension, before the age of 55, there are currently two main types of service available –
- Current pension fund under £30,000 – pension loans are usually the only option if your current pension (or combined value of several pensions) is less than £30,000. As far as we know, the minimum pension value that pension loan schemes will accept is £15,000. So if your current pension is worth £15,000 to £30,000 you may be able to get a pension loan. Usually pension loans can lend you in the range of 25% to 40% of the current value of your pension.
- Current pension fund over £30,000 – early pension release schemes will usually only accept people with a current pension value over £30,000 (some will only accept pensions over £70,000 or £80,000). We are aware of one pension release scheme that is fully HMRC compliant and 100% legal and offers a way to release up to 90% of your current value, if your pension fund (or combined funds) is worth over £30,000. Please fill in the form at the top-right of this page if you would like to find out more.
Pension Loans for Early Pension Release
It may seem strange to suggest a pension loan for people wanting pension release under 55. But “pension loans” are not always loans! There are many different “pension loan schemes” on the market, each operating in slightly different ways. It is impossible to cover all the options in this article (and new ones are appearing regularly). Some of the schemes do literally offer a loan against your pension – you pay interest on the loan, and your pension is used as security in case you are unable to keep up your loan repayments.
But, in some pension loan schemes, money is released from your pension in other ways – for example, by transferring your pension into a SIPP, and then investing some or all of that cash in an investment that pays a lump sum up-front, which may be then paid out to you.These type of schemes are not really “loans” but many providers use the term Pension Loans to make it easier for customers to understand.
Please be aware though, that one type of pension loan scheme was ruled illegal by the UK High Court in December 2011. “Pension Reciprocation” schemes are now illegal – these involved several people transferring their pension funds into a central fund, which then made loans to other members of the scheme. Be sure to ask any pension loan providers you speak to whether “pension reciprocation” is involved in their scheme. It is unlikely, since the High Court ruling, but better to be safe than sorry!
Remember, if you enter into a pension loan scheme that uses your pension as collateral, you risk losing some or all of the value of your pension if you are not able to keep up the repayments. And, with any pension release scheme you are considering, find out what the potential “downside” may be – if you release cash from your pension, you are likely to have less income from that pension available when you retire.
Early Pension Release, Under 55
If you have a UK pension fund with a current value of £30,000 or more – or several pension funds that add up to a combined value over £30,000 – you may prefer Pension Release, rather than a pension loan. There are several factors to consider when weighing-up Pension Release options –
- Is the scheme legal? In any growing industry, there are likely to be shady companies, who are more interested in profit than in their customers’ well-being. Pension release schemes can be scrutinised by both HMRC (the tax office) and the FSA (Financial Services Authority) although the schemes are not, strictly-speaking, FSA regulated. You can ask a potential Pension Release provider whether they have a written opinion from a QC (Queen’s Counsel) or suitably experienced Barrister, to support the legality of their scheme. You can also ask the provider whether they have had cases that have been scrutinised by the FSA and/or HMRC and have passed successfully, to show that their scheme is tax-efficient and compliant with the latest legislation.
- Age restrictions? Does the scheme have any age restrictions – there are often different schemes for pension release under 55 than for pension release over 55.
- No Credit Checks? Most pension release companies will not need to do a credit-check on you, as you are releasing money from your pension, so your credit history is irrelevant. This can make it an attractive option for people with poor credit history, who are looking for an alternative to other “bad credit loans”.
- How long does it take? This will vary, and actually depends more on your current pension provider than on the pension release company. The pension release company will help you to arrange a pension transfer, as part of the process, but some pension schemes can be slow to process that transfer. It can take anything from 3 weeks to 3 months, depending on the company.
- How much can you release? Pension release providers vary in the amount of cash they can help you to release from your pension. Most companies we have seen can help you to release 30% to 70% of your pension’s value. We know of only one company that can help you release up to 90% of your pension as cash.
- Is it right for me? Only you can answer that question! Pension release providers are usually not registered with the FSA, and so should not give you any financial advice. They should only take information from you about your current financial situation, and then tell you about any options they can offer. Make sure that the person you speak to is listening and understanding your needs and your situation. If they seem like they just want to sell you a “one size fits all” service, you may want to try elsewhere! And if you are in any doubt, please contact a qualified Financial Adviser before making a decision.
Pension Release or Pension Loans – Find out more
If you would like to find out whether a pension loan or pension release is right for you… or just discover more about your options… please fill in the form at the top-right of this page, to book a free, no-obligation phone call.