Pension Transfer Penalties Warning

Pension Transfer Penalties Warning.

Yesterday, the new rules for flexible pension drawdown started at the dawn of tax year 2015/2016.

We have been approached by numerous existing clients as well as even more potential new clients wishing to find out about how the new pensions flexibility rules affect them.

Many people we have found have old style pension schemes set up by previous advisers on a commission basis and indeed, in many cases, with enhanced allocation. An example of enhanced allocation would be for every premium that you paid into your pension 106% was shown as being invested into your pension. These types of pension schemes were designed to hide the fact that commissions were being paid to your adviser both upfront and on an ongoing basis, where behind-the-scenes, your 106% allocation rate then had the usual initial charge or bid/offer spread applied to it usually at around 5/6%. This 5/6% was then usually paid to your financial adviser but from your perspective it appeared that you had invested for example £100, it had then been enhanced to £106 and then a 5/6% charge was applied meaning on paper you still saw a value of around £100.

In the small print, it would then show that there were penalties for you to transfer your pension to another pension company or take early retirement. By applying early exit penalties, the pension company was ensuring that it recovers money in charges that it had already paid out. Staggeringly, we have even seen some pension companies with allocation rates of over 110% meaning that unsuspecting savers think that their pension fund is actually doing better than what it really is.

Enter the new flexible pension drawdown rules. People are surprised to find out that they have transfer penalties or early retirement penalties for these older style opaque pension schemes and this is why we are issuing a warning to readers to check their pension scheme for any early retirement penalties or early access penalties or transfer out penalties.

When considering the new flexible pension drawdown option you may not be surprised that some companies with these older style pensions may not offer you full flexible pension drawdown access for your existing scheme but may suggest you take financial advice first and then transfer to a new style pension scheme with the same company or transfer externally. Either way, the pension company will recover its charges and our suggestion is you should always take expert financial advice before making any early retirement or at retirement decisions.

The on the lookout for hidden pension charges penalties.