Keep your pension safe from conmen
AFTER your home, your pension savings are likely to be your biggest financial commitment. That makes them attractive to crooks, who are using increasingly sophisticated ways to scam you out of your nest egg.
The floodgates opened with the introduction of the pension freedoms in 2015, which allowed people to access their savings flexibly from the age of 55.
The latest numbers from the financial regulator show that those people who fell victim to pension scams last year lost an average of £91,000 each.
And sadly, the regulator fears there are many victims it does not know about because they are too embarrassed to admit they’ve fallen prey to fraudsters.
While the Government is aware of the issue, it is dragging its heels over introducing a ban on pension cold calling, one of the key ways scammers contact victims.
Andrew Tully, pensions technical director at Canada Life, says: “Pensions and retirement can be a complicated business and there are huge bear traps for the unwary. These include paying too much tax on withdrawals, falling prey to the conmen or making poor investment choices.
“If you have a defined contribution pension and are thinking about your options, you should book a free appointment with the Government’s Pension Wise service. You will be able to talk through the options open to you without any sales pressure, and hopefully be better informed.
“A regulated financial adviser will be the only way you will receive advice on what to actually do with your pension.”
There are key ways to keep your retirement savings safe. Here we explain the simple steps you can take to protect yourself:
Investing
You might not think you are involved in the stock markets or investing, but unless you’re one of the fortunate people with a finalsalary (defined benefit) pension then you will likely be investing in stock markets, government debt (bonds), and quite often property.
It’s always worth checking where your pension is invested to ensure it matches your attitude to risk. If you are saving into a company pension, never simply accept the default fund – it often may not provide the best returns.
If you’re approaching retirement it’s worth reviewing again where you are invested as your approach may change depending on if you are thinking about using income drawdown (you leave your money invested and withdraw cash as you need it) or an annuity (where you give your money to a pension company which then agrees to pay you an income for life).
55 is only a number
It’s not a deadline, just the earliest age you can access any pension savings. And this doesn’t mean it should give you the green light to do so. There are huge tax benefits to leaving your money alone until you really need it. And there are very limited circumstances where you are legally allowed to access a pension before age 55 (for example if you are terminally ill) so any company suggesting you can will be running a scam.
Seek help
Pensions and retirement planning is complicated. If you are aged 50 or over, take up your free Pension Wise session (visit pensionwise. gov.uk or call 0800 138 3944). The Pensions Advisory Service (pensionsadvisoryservice.org.uk) also offers guidance on pensions. If you don’t feel confident making decisions about your pensions or retirement plans, then consider seeking proper regulated financial advice. A qualified financial adviser will be able to provide bespoke advice that is tailored to your individual circumstances.
Transferring a defined-benefit pension
One of the biggest financial decisions you can make is transferring a final-salary, or definedbenefit, pension. These are considered the gold standard and guarantee an income for life, with all of the risks associated with investment and living longer resting with the pension scheme, rather than you.
Many people now consider transferring these types of pension due to high transfer values and the extra flexibility offered by managing the cash yourself. But unfortunately there have been instances where rogue advisers and ‘introducers’ have encouraged people to move when they would have been better off staying put. These decisions are complex and you must seek proper regulated financial advice – it’s mandatory in most transfers.
Beware of crooks
The pension freedoms have opened up the floodgates to conmen keen to get their mitts on your hard-earned pension savings. Many people have fallen prey and lost all or most of their pension savings.
The Financial Conduct Authority has recently launched a TV advertising campaign to raise awareness of these scams. But the best advice is to simply put the phone down or delete the email if you are offered a ‘free pension review’, or the offer to access money before the age of 55.
Check fca.org.uk/scamsmart before you do anything.
Don’t pay too much
The first 25% of the value of your pot can be withdrawn tax-free – one of the big attractions of saving into a pension. Any further withdrawal is subject to income tax.
If your total income for the tax year exceeds the personal allowance (currently £11,850) you will start paying tax.
HMRC will base the tax you pay on your total earnings including salary (if you are still working) and state pension.
You can try the pensions tax calculator at retirement advantage.com/pension-taxcalculator to get an idea of what you might pay.
Rogue advisers have urged victims to leave ‘gold standard’ final-salary schemes