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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Watch out for pension scams as households experience financial stress
Thursday 14 May 2020 Author: Daniel Coatsworth

I received a phone call from someone saying I could access 50% of my pension today through a loan scheme. I’m 50 years old and while my job is secure for now, it’s entirely possible that will change. I have no other savings, so it would be useful if I could access my pension in this way.


Tom Selby, AJ Bell Senior Analyst says:

With the lockdown placing huge strain on millions of people’s finances, it is no surprise to see scammers attempting to take advantage of the situation.

To be absolutely clear, UK pension rules do NOT allow you to access your retirement pot before age 55 in most circumstances. This includes taking a loan.

Anyone who does take money from their pension early will as a minimum be hit with a 55% unauthorised payment charge  by HMRC.

In the situation of a pensions scam, at best you’ll be subject to sky high fees by the fraudster as well, meaning you only get a fraction of your pension back and your retirement prospects are left in tatters. Many people lose everything as a result of these types of scams.


The main exceptions to this early access rule apply where you are in ill-health. There are two sets of circumstances where this could be the case:

– Where you have been forced to take early retirement because you can no longer work in your occupation

– Where your illness means you are not expected to live for more than a year

On the first point, some schemes’ rules are stricter and will require the individual to be incapable of carrying out any occupation, not just their current one. You will also need written evidence from a registered medical practitioner that you are no longer able to return to your current employment.

If you are in a defined contribution scheme such as a SIPP and qualify for early pension access in these circumstances, you should be able to access 25% of your fund tax-free with the rest taxed in the same way as income.

On the second point, there are four main requirements you will need to meet to qualify for a serious ill-health lump sum:

– Written evidence from a registered medical practitioner that you have less than 12 months to live

– Pension benefits must be uncrystallised (this just means you haven’t committed your fund to a retirement income route such as buying an annuity or entering drawdown)

– You withdraw your whole fund as a single lump sum

– You must have some unused lifetime allowance

Provided you are under age 75 and have lifetime allowance remaining, the entire serious ill-health lump sum should be tax-free. If you are over age 75, the lump sum will be taxed in the same way as income.

Any funds you take out will form part of your estate for inheritance tax purposes.


Send an email to with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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