How to ‘Release’ Funds from Your Pensions Legally!

There were stories some time ago about people being duped into so-called early release of funds from their pensions. The problem with that is the fees were exorbitant and there was somewhere between a contingency and a certainty that the tax relief given to the contributions would be demanded back by the revenue at some point. This would wipe out some, all, or even more than, the net funds received after the pension was apparently liberated. Caveat emptor.

So is there a way to get your pension funds out before the statutory age applicable for the particular type of pension you have? In simple terms no there isn’t. But in practical terms you can effectively release some funds by hedging the positions in your pension using a tax efficient leveraged product like a spread bet.

Let’s say you manage your own SIPP. Given markets have been rising for a really long time now, a bear market must be closer than it was yesterday at least. It’s when the investments in your pension start to fall that you have a problem. Will you time it right to go into cash? And these days you can’t even earn any interest from cash to speak of. Plus, markets don’t tend to fall in a straight line, they’ll go down in waves, every so often giving the impression of recovering as the gullible try to kick-start the markets again. They also retrace as they rise, so there are plenty of down-legs for most positions. How can we cope with these?

There’s a variety of short ETFs eligible for SIPPs. I checked on Hargreaves Lansdown’s site and they offer the major indices, even leveraged up to 3X, a range of FX and commodity ETFs. And seemingly they’re all eligible for your SIPP. Even something as obscure as ETFS Commodity Securities Daily Short Cotton! So no need to lose the shirt off your back. But these help you to control the capital inside your SIPP, not effectively to get any of it out.

So the trick is this: if you have a position which is a fairly trending stock or instrument, and it gives a clear short signal, an alternative to selling it is to open a short position with a spread bet to hedge the amount of the holding in your pension. Now if the stock falls the amount lost on the pension investment will be gained on the spread bet and (should) remain tax free (as spread betting presently is for the majority of people) now outside your pension. Effectively you’ve been able to take some of the money from your pension with no penalty perfectly legally.

Of course you will need to trade size to match the position inside your pension if that’s what you’re trying to do. If the opportunity presents itself it’s quite a nice way of doing things, especially for market fluctuations that aren’t changing the overall picture. Obviously if you cock it up you’re putting taxed money into your SIPP in effect.