FSA warns firms on “pension unlocking” advice

The FSA has issued a warning to financial services firms advising on so-called “pension unlocking”.

The regulator is warning consumers of the dangers of cashing in their pension pot before they retire, and says it will take “relevant action” against firms producing misleading financial promotions or inappropriate advice.

The FSA says that people releasing benefits from an occupational or personal pension before reaching retirement age face a “substantially reduced” income in retirement.

A new FSA consumer alert gives an example of a man whose post-retirement income will be substantially cut, perhaps by over 80%, because he “unlocked” his pension pot 12 years before his retirement age.

David Kenmir, director of investment firms at the FSA, says: “”It&#39s an expensive way to free up extra cash and, in addition, your financial adviser may well take a fee for dealing with it meaning that part of your hard earned pension pot will benefit him rather than you.”

He tells consumers: “Releasing cash may sound very tempting but you need to stop and think about whether you really need to do it. It is rarely in anyone&#39s long-term financial interests. Only in exceptional cases, where you have immediate needs and no other option, should you even consider doing it.”