His Majesty’s Revenue and Customs (HMRC) has issued a firm warning to anyone considering withdrawing money from their pension before the legal age of access. Individuals could find themselves facing tax charges of up to 55% if their withdrawal is deemed “unauthorised”.
This development comes as some firms have been accused of promoting early access to pensions through supposed legal workarounds. HMRC has moved to clarify that no such loopholes exist and that any attempt to unlock funds prematurely is highly likely to be unlawful.
Unauthorised Withdrawals and How Tax Penalties Are Applied
According to HMRC, any attempt to take money from a private pension pot before the age of 55 (soon to rise to 57 from April 2028) can be classed as an unauthorised payment. The rules also apply to other scenarios such as receiving lump sums over £30,000 that do not meet specific criteria, or continued payments made after a pension scheme member’s death.
In a public warning, HMRC stated: “The tax rules specify the conditions that need to be met for payments to be authorised. Any payment that does not meet these conditions is an unauthorised payment.”
The tax implications of such actions are significant. When an unauthorised payment is identified, it triggers not one but three possible tax charges: the unauthorised payments charge, the unauthorised payments surcharge, and the scheme sanction charge.
Where the unauthorised payment is made directly to or on behalf of a pension scheme member, it is the individual member who is liable for the tax, even if they did not actually receive the payment. If the payment occurs after the member’s death, the person receiving the funds becomes responsible. In cases where the payment is made to an employer involved in an occupational scheme, it is the employer who bears the liability.
The unauthorised payments charge alone stands at 40%. Added to that is a 15% surcharge if the unauthorised amount exceeds 25% of the total pension pot value within a single year. This brings the total possible tax liability to a striking 55%, according to the same guidance issued by HMRC.
Firms Falsely Promoting “Legal Loopholes” Targeted by Hmrc
In recent years, a number of companies have come under scrutiny for encouraging savers to access their pensions early, often under the pretence of offering personal loans or cash incentives. According to HMRC, these firms frequently promote the idea of a “legal loophole” that allows people to avoid paying tax when withdrawing their savings early. “There is no legal loophole and these transactions are unauthorised payments,” HMRC said.
These schemes are not only unlawful but also misleading, as they tend to obscure the significant tax consequences involved. Individuals lured by the promise of immediate cash are often unaware that the resulting tax burden may consume more than half of their pension funds.
In some cases, people may also be unaware that they are engaging in unauthorised activity, especially when the scheme is presented as legitimate by an intermediary. But HMRC has made it clear that ignorance does not exempt one from responsibility. The person receiving the payment (or for whom the payment was made) is still liable for the resulting tax charge.
As public concern grows over the rise in pension scams, HMRC continues to advise savers to seek regulated financial advice before making any decisions about accessing their pension. The risks of falling into a costly tax trap remain high, particularly with the increase in firms using misleading marketing to bypass official pension rules.
