“THE PENSION CROOKS WHO WANT TO GET THEIR HANDS ON YOUR PENSION POT”

One in eight employees aged 50 or over has been the target of fraudsters promising to release their pension savings.  Workers in their 50s are being warned that they are the primary target for scamsters who are using dramatic changes in the pensions system to try to part them from their retirement pot. Changes from April 2015 mean that retirees can, for the first time, use the money as they wish instead of having to buy an annuity. The first 25% of this will be tax-free. They will be able to use the money to pay down debts, for example, invest outside the pension, or simply enjoy life – even blowing the lot on a sports car, according to the pensions minister.“ This is great news for pension savers,” says Gareth James, from DIY investor platform AJ Bell. “But a dangerous combination of excitement and confusion could see those unsure of the rules lose the lot.” Research from Fidelity last week showed that around one in eight people aged 50 and over have been approached by fraudsters, promising to release more than the 25% lump sum, or to gain access to pension savings earlier than the minimum age of 55. Many of the companies contact people via unsolicited phone calls or text messages, offering a “free review”. Others specifically target those on public bankruptcy lists, while some approach people via official-looking “financial advisers”.

 The majority of those approached are between 50 and 59 – just when many are starting to think about retirement. More than one in 10 of those approached by these so-called “pensions liberation firms” trusted the advice given to them, said Fidelity. This has partly been driven by a significant lack of understanding around the new pension rules – two thirds of the over-50s don’t understand them, it said. “Some understand the rules as equating to immediate access without any caveats and can become very frustrated when they view providers as ‘holding on’ to their money unfairly,” said Alan Higham, retirement director at Fidelity Worldwide Investment. “Fraudulent organisations have capitalised on this, encouraging consumers to hand over their savings without fully understanding the tax penalties.” HMRC will hit those who cash in their retirement fund before the age of 55 with a charge of at least 55% of the sum released (or 70% if they fail to report it). And with the changes to pensions rules coming in next year, fresh scams are expected to surface encouraging the over-55s to take large chunks out of their pension to pile into dodgy investments offering staggering returns, paying lots of tax in the process. “Whatever the law is, fraudsters will seek to exploit it – so we expect the scams to continue to evolve under the new regime,” says a spokesman for the pensions regulator. Phil Ireland, 64, who is self-employed and runs a print finishing business, thinks the new freedoms are a “great idea”. He has been offered a “free review” several times through unsolicited emails and texts. “I haven’t taken these up yet, thankfully – and now I realise they’re a scam. I know there are several official services I can go to for guidance.” He adds: “Having said that, the change is very welcome, as it’s good to have choice and I need to work out what to do with my money. It’s really hard to know. I’ve done some research, and calculated the return from an annuity on £100,000 – I was bitterly disappointed.” He has a self-invested personal pension (Sipp) and a pension from previous employment. “My mortgage will still need to be paid off, but I’ve got an endowment for that,” he says. “I want professional advice on what to do with the pensions, but trying to work out which adviser is kosher is hard.” If you are in any doubt about the credentials of an adviser, you can look them up on the Financial Services Register and check they are qualified to advise on all aspects of pension planning. You can also check that any company you are dealing with is registered with the Financial Conduct Authority (FCA). “This means that the investment firm has been stamped by the industry ‘kite mark’ and will ensure that you always have a full recourse to the compensation scheme if something goes wrong,” says Chris Williams from online advisory service Wealth Horizon. You should expect to pay at least a few hundred pounds for professional advice. The Pension Income Choice Association has a comprehensive list of IFAs who are retirement specialists and can give you information on alternatives to annuities, such as drawdown.

Investment firms, such as Fidelity, have launched specific retirement services enabling investors to do it themselves, or buy advice in the areas they may need it. Independent bodies such as the Money Advice Service and the Pensions Advisory Service are there to answer general questions, but it’s expected they will be flooded with inquiries ahead of the rule changes. They won’t provide advice – simply guidance. Even those who do intend to make use of the new rules should exercise caution, stress advisers. While the first 25% of pension cash may be tax free, any remainder will be taxed at your personal rate – which may be 40%. Pensioners are free to draw down the money as they feel fit, but will want to withdraw at a rate that keeps them inside the 20% tax band. “Drawing out all your pension and paying the top rate of tax during the first year isn’t a good idea if you can stage it over a few years,” says pensions adviser Yvonne Goodwin. For most, a blend of options at retirement will likely be the best approach. This could include keeping some money in cash, leaving the rest invested in a mix of bonds, equities, and property, wrapping as much as possible in a tax-free Isa. You could, for example, buy an annuity to cover essential outgoings, and invest the rest. “An annuity will still be a suitable choice for many people, especially for those who want the certainty of a sustainable lifetime income and aren’t prepared to take additional risks,” says Patrick Connolly from independent financial adviser Chase de Vere.

NEED TO KNOW   

You are free to take your pension savings in cash when you reach age 55 (or 57 from 2028). You are not allowed to access your pension before this age. If you do, you risk at least a 55% tax charge.

1. The first 25% of pension cash is tax free. The rest will be taxed at the individual’s marginal rate – so many people could face a 40% charge.
2. You do not have to buy an annuity, but can use your money however you like.
3. If you have already bought an annuity or gone into drawdown in retirement, you cannot take advantage of the new rules.
4.  If you are in a final salary scheme that promises a regular income at retirement, you will probably want to stay put. However, you will be able to switch into a defined contribution (DC) scheme if you wish and withdraw your fund.
5.  Schemes for public sector workers, including doctors, nurses and firefighters, come with different rules. They will not be able to access the cash in these “unfunded” schemes. However, if it’s “funded” - such as local authority workers and the universities scheme – it can be transferred into a DC scheme and the money made accessible.

Culled from Observer