It’s been six years since Pension Freedoms were introduced. They gave retirees more choice in how they accessed their pension, and increased the need to make important decisions about how and when to do so. Unfortunately, it’s also made pensions an attractive target for fraudsters.
In recent weeks, the lack of Pension Freedom safeguards, causing some retirees to fall victim to scams, has made headlines. Speaking to FT Adviser, Stephen Timms, chairman of the Work and Pension Committee, said the lack of safeguards has been “life-ruining” for some.
According to the Financial Conduct Authority, over £30 million was lost to pension scammers between 2017 and 2020. The amount that individuals lost varied, but one victim lost £500,000. In many cases, the money lost is irrecoverable, so getting hit by a scam could have a devastating impact on your retirement plans and quality of life. It’s thought that the number of reported scams is only the tip of the iceberg.
As one of the largest assets many people have, it’s easy to see why scammers are targeting pensions. The lack of awareness around how pensions work and the ways they can be accessed are also valuable for scammers, as they can capitalise on people’s ignorance. Understanding how you can access your pension can help you reduce the risk of falling victim to a scam.
The importance of keeping track of your pensions
While it might be years before you can access your pension, it’s important to keep track of it. It can help you better understand your retirement provisions and means you’ll be better informed if you are targeted by scammers. Despite the importance of pension for long-term security, it’s something many are overlooking.
According to Unbiased research, one in five Brits don’t know how much they have saved in their pension. Not understanding your pension and it’s worth can provide scammers with an opportunity to exploit you. It can also mean you aren’t as cautious when making decisions or discussing your pension as you would be with other assets.
It’s also important to note when you can access your pension. Many scammers will claim they can “unlock” your pension early using loopholes. However, your pension is not accessible until you’re 55, rising to 57 in 2028. Being able to access your savings early may seem like a tempting offer, but it’s a red flag that you should keep in mind.
There are rare circumstances when you may be able to access your pension early, such as following a terminal diagnosis. In these cases, however, you should speak directly to your pension provider.
How can you access your pension?
As well as knowing when you can access your pension, understanding the different options can mean you’re able to spot a scam.
- Take lump sums: You can take lump sums out of your pension as and when you need to. You can normally take a 25% lump sum tax-free if you choose to. However, you should fully understand the long-term impact of withdrawing a lump sum before proceeding. In some cases, scammers have persuaded retirees to make withdrawals to move the cash into attractive sounding investment opportunities. Always carefully weigh up investments and consider how they might fit into your plans.
- Purchase an annuity: Purchasing an annuity provides you with a guaranteed income for life. You’d use some or all of your pension savings to purchase the product, which will then deliver a regular income you can rely on. If you’re worried about security, an annuity can provide financial stability. As with any financial decision, don’t rush and be sure you’re dealing with a trusted provider.
- Take a flexible income: Using flexi-access drawdown allows you to withdraw a flexible income from your pension. If your income needs will change throughout retirement, this can be valuable. It can also mean you become a target for scammers, as you would be able to make significant withdrawals.
You don’t just have to pick one option – you can mix the different options to create a pension income that suits you.
Remember, you don’t have to access your pension once you reach pension age. You can choose to leave it where it is until you’re ready to take an income from it. Your pension will usually remain invested.
5 pension scam warning signs
- You’re contacted out of the blue – There is a ban on pension cold-calling. If you receive unsolicited contact, be cautious and always verify who you’re talking to using the Financial Conduct Authority register.
- It’s a limited time offer – Scammers will try to put pressure on you to make a quick decision, so you don’t have time to think your options through. A time-limited offer or pressure to make a snap decision are warning signs.
- Phrases such as “loophole” and “pension liberation” – Fraudsters may claim to give you early access to your pension by making use of loopholes. As mentioned above, this isn’t possible.
- Unusual or complicated investments – You should ensure you understand your investments and that they’re easy to locate. If you’re being offered unusual investment opportunities, like overseas property or forestry, take a step back.
- The offer seems to be too good to be true – Sadly, if high or guaranteed investment returns are on offer, it’s a sign of a scam. If something sounds too good to be true, it probably is.
If you’ve been approached about a pension or investment opportunity that you’re not sure about, please get in touch. We’ll help you understand what is on offer – another pair of eyes can make all the difference if you’re being targeted by a scammer.
Please contact us if you’d like to discuss your pension options and what it means for retirement. If you believe you’ve been targeted by a scam, you should report it to Action Fraud. You can also find more information about scams on the Financial Conduct Authority website.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
