The Financial Services Authority has warned consumers not to put their trust in expensive pension-loan schemes that offer early access to up to 50 per cent of the fund.
These schemes seem to consist of the company involved assuming direct control of the pension fund and moving it to a corporate bond. The company issuing the bond then agrees to loan the client half the transferred amount as cash.
‘You should consider alternatives to pensions unlocking schemes,’ was the statement issued to consumers. ‘If you have debts, it is likely to be better in the long term for you to continue with the terms of repayment you currently have or speak to a debt adviser. Pension unlocking schemes are an expensive way to free up extra cash and will affect your income for the rest of your life.’
Tax charges are another danger, according to the FSA - HM Revenue and Customs (HMRC) can impose a 70 per cent unauthorised payment charge on anyone accessing pension funds through a loan or ‘ways outside of the normal allowed methods’. The FSA, HMRC and TPR are working together to learn more about these schemes.
