Why you should not use any scheme to unlock your UK pension. The dangers are too great.

Cruncher By Cruncher, 21st Jul 2013 | Follow this author | RSS Feed
Posted in Wikinut>Money>Pensions

Pensions unlocking (or pensions liberation) means getting your pension money before you are 55 (which is usually impossible for most people in the UK). Unfortunately whatever you are promised you are likely to lose 55% of your pot in a punitive tax. And you may lose even more. The Government is cracking down on these schemes. It is not worth the risk.


Pensions unlocking (also known as pension liberation) refers to schemes in the UK designed to let people get hold of their pension assets before the legal minimum age of 55. While not technically illegal there are punitive taxes, high provider charges and sometimes outright fraud or money put into very unsafe overseas investments. You will get back less than half your pension pot. You may get totally ripped off and get nothing. It is not worth it.

(Picture by jeporrier via Flickr)

What is pension unlocking?

Pensions unlocking refers to any scheme that tries to get around the UK rule that you cannot touch the money in your pension pot until you reach 55 (apart from a few exemptions such as terminal illness, or those in particular jobs such as police, firefighters or armed forces).

These schemes charge a fee and claim they can get your money out of your pension without you having to pay the penal 55% rate of tax that would usually apply.

These schemes don't work. The UK Government has recently announced a crackdown on them.

Is it illegal?

The short answer is "Yes". In the UK the tax rules say that you cannot take your pension before age 55 without paying a penal rate of tax. There are a small number of exceptions that genuinely apply (take specialist advice and check the rules carefully if you think they apply to you). But otherwise the taxman will take 55% of any money you take out of your pension before you get to age 55.

The long answer is "It's complicated." Technically, it is not illegal in the sense that you can take the money, if you are willing to pay the 55% tax. But the unlocking schemes are really ways to try and get around that tax. And, technically speaking again, if it's a new scheme that hasn't yet been taken to court the people pushing it will say that it's "not illegal". This is not the same as saying that it is safe, or even that it's legal! It just means no one has been prosecuted successfully for it yet. But, given Government policy, it's pretty likely that someone will pretty soon. Would you want that someone to be you?

Who are these people promoting it?

These people call themselves "advisers" but they are little more than con artists. They usually try and sell these schemes very aggressively and that in itself should be a warning. All too often these people operate from countries overseas where it is very difficult to track them down if things go wrong. No reputable companies will touch this kind of work and many insurance companies will prevent transfers from being paid to unlocking schemes if they are aware of them.

What does it cost you?

There is usually a large, non-refundable fee involved (although this will be less than the 55% tax in most cases). However when you get caught by HMRC, you and you alone are responsible for paying the tax, so you will have lost 55% through tax, another chunk in fees to the "advisers". Overall you may end up with only one quarter or a third of your original pot. Which doesn't look like such a good deal.

What could happen to your pension?

You also need to think about what it means for your retirement. The State Pension in the UK is being increased soon but it is still only a very small amount - less than most people need to live on. If you give up all your pension savings in an unlocking scheme you won't have any for your old age and you will have to eke out your final years unable to afford the things you planned or will have to keep working into your seventies or eighties.

Take a look at this article about the basics of pensions to understand more about your options.

What else could go wrong?

You could be the person who ends up in court because HMRC wants to prosecute someone in order to show that your kind of scheme is definitely illegal. This would be a huge amount of extra stress and cost. You may even end up losing more than the pension pot you started with.


When you are desperately short of cash it can be frustrating that you have a pot of money sitting in your pension that you can't touch. But pensions unlocking is never worth it. You will lose more than half your pension pot, and you may lose more than that. There is nothing you can do but wait until you are 55. Anyone who tells you differently just wants to get a slice of your pension for themselves.


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Meet the author

author avatar Cruncher
The Cruncher is a finance professional working in London, UK. He has a wide knowledge of pensions and investments (and spreadsheets). And would rather keep his online opinions about them separate from

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author avatar Mark Gordon Brown
21st Jul 2013 (#)

Good tips for anyone considering this.

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author avatar Cruncher
21st Jul 2013 (#)

Thanks Mark. I hope it puts anyone considering pensions unlocking off doing it!

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