By Dash Ormond

Due to current loopholes in Financial Services Authority regulations, it´s possible for pension savers to end up spending up to 70% of their saved private pension funds before they retire – but not actually see anywhere near that amount.

A quick browse through some of the Google results for “pension release under 55” presents a slew of companies offering to help you access large chunks of your saved up retirement funds for you.

How Much?!?

Think about that figure we mentioned for a second – 70% of your ENTIRE private savings. Imagine if someone said to you today that you could have 70% of all your future earnings now in return for living off the remaining 30% of your salary for the foreseeable future. It´s easy to imagine that there aren´t that many of us who to whom 70% of our monthly income is disposable.

So with that in mind, taking 70% of your PENSION fund can seem like insanity – and it looks like the FSA agrees.

Enter the FSA and HMRC

A recent article in Scotland on Sunday highlighted that both the FSA and Her Majesty´s Customs & Excise (HMRC) have been called again to investigate the situation with so-called “pension reciprocation schemes” (sometimes otherwise known as ‘pension loans’) and urge investors to steer clear of the companies that offer them.

In a twist on the whole pension release situation, a reciprocation scheme involves the saver authorising the scheme provider to transfer a large chunk of their pension pot to a new scheme. The scheme provider then ‘reciprocates’ by offering the saver a loan. Unfortunately, what sometimes isn´t made clear until the action has been signed off is the fact that the loan comes with charges that can increase to overall cost of the scheme up to the aforementioned 70% figure. There may also be adverse tax implications for the saver.

Falling coins


But who would take out such a loan?

Well, times as they are, people can and do panic when bills come in and money is tight. It can seem very tempting to look at these schemes and see some sort of light at the end of a nasty financial tunnel but the reality is that pension reciprocation schemes can leave the saver in a far, far worse situation.

What to do? What to do?

There are much better ways to resolve cash flow issues with a lot of free advice available on this website and elsewhere that don´t involve spending money to acquire money. Talk to creditors; seek advice from your local Citizens Advice centre or free debt advice services such as the CCCS.

Additionally, if you suspect the services offered by a company, you can always verify their credentials with the FSA – all authorised pensions advisers must be registered with the FSA and you can run a check on the company by phoning the FSA on 0845 606 1234 or by visiting the FSA´s website –

Dash Ormond is a pension release expert for Grove Pension Solutions Ltd.

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