Cash clinic: Withdrawing pension funds before 55

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Derek Lyttle, a personal debt solutions manager offers some advice

I have received a few phone calls from firms who tell me that I can withdraw money from my pension before the age of 55, which I didn’t think was possible. I am 52 years old and, given my current position – I have some debt, I work part time and don’t have much in the way of savings – this is a tempting offer. However, I am not sure if this is a good idea, or even if it’s legal. What advice can you give me?

CM, Aberdeen

These pension firms are basically predators who are trying to get access to your hard-earned money. There was an article in Smart Money about these “pension liberation”schemes on Saturday, 9 February.

The government and HM Revenue & Customs are cracking down on these firms and the Pensions Regulator is working with the Financial Services Authority (FSA), HMRC and the Serious Fraud Squad to develop a series of new documents to warn people of the dangers of them.

We cannot stress enough that pension savings are for retirement and should not be released until the age of 55. If you try to access your funds early, you could risk losing your pension through high charges and a big tax bill.

It is important that your investment for future years is protected and there are pension providers who are now blocking transfers to schemes that they think are being used for “pension liberation”. It has to be said, providers who do not carry out due diligence may be putting their clients’ investments are risk and the Pension Regulator is closing in on firms who are trying to encourage such activity. We would recommend that you take the advice of a specialist pension adviser if you have any concerns regarding what you can and cannot do.

In terms of helping your current situation, we advise that you try to avoid using your savings or “nest egg” to help with paying bills or debt in this uncertain climate. Retirement funds and savings can grow over time and paying into them is one way to ensure that you will have a more comfortable future. Why not consider trying to change the way you handle debt and make small changes to your lifestyle that fit with your circumstances?

This doesn’t have to be on a permanent basis. Try to cut back on frequent restaurant visits and holidays, for example, or cut back on the extras until your debt reaches a manageable level. If your debt is coming from multiple sources and seems to be too much for you to handle on your own, there are debt management schemes that can help to cut down on debts by making deals with creditors and consolidating your payments into one easy monthly payment.

For free debt advice, go to your local Citizens Advice Bureau, call National Debtline on 0808 808 400 or the StepChange debt charity on 0800 138 1111. You may find you need to make lifestyle changes instead of using your savings and keep your pension fund secure for another three years. However, you will then ensure you have a comfortable lifestyle into your retirement. If the firm calls again, take their details and report them to your local Citizens Advice Bureau or MP.

• Derek Lyttle is a personal debt solutions manager at MLM Solutions.

If you have a question you need answered, write to Jeff Salway c/o The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or email: