SCOTS planning to take advantage of new rules opening up access to pension pots next month can swerve the rip-off merchants with a few simple steps – but those rushing in could pay a heavy price.
The City regulator has issued a fresh warning over the fraudsters waiting to pounce on those accessing their hard-earned savings when the changes take effect.
Some scammers are already targeting savers with misleading promotions concerning their pension rights. “Unscrupulous crooks” are “clustering around older savers”, pensions minister Steve Webb recently admitted. He added that fraudsters would become a “plague” on over 55s.
The wide-ranging reforms, announced in last year’s Budget and taking effect on 6 April, will allow people aged 55 or over in defined contribution schemes to take their pension pots in one go, with no obligation to use their liberated cash for a retirement income.
The scale of the changes and the haste with which they are being implemented has sparked fears over the consequences. They include the prospect of many people draining their retirement savings prematurely, while the free guidance available through the Pension Wise service is unlikely to prevent people from making costly tax and investment errors.
But the most immediate concern is that many will fall into the arms of the rip-off merchants.
The Financial Conduct Authority (FCA) last week urged pension savers to be wary of “unscrupulous fraudsters” offering investments with high returns.
It has launched a ScamSmart campaign highlighting ways in which people can protect themselves against fraudulent or unsuitable investment opportunities. The guidelines issued by the FCA include rejecting cold calls, checking its warning list and seeking impartial advice.
But some scams are relatively sophisticated and often very convincing, including those purporting to offer advice or reviews.
One in six people aged 55 or over have received an unsolicited phone call, email or letter over the past year offering them a free review or a new way of accessing their savings, according to research by Old Mutual Wealth.
Research last month by Phoenix Group found that savers are almost three times more likely to be contacted now about reviewing their pension or releasing some cash from it than they were before the 2014 Budget.
The best form of protection is to seek impartial advice before taking any action under the new rules. Professional, independent advice is the best option – you can find an adviser near you at www.unbiased.co.uk.
But those unable or unwilling to pay a fee also have access to a new free guidance service. Pension Wise is available online (at www.pensionwise.gov.uk), over the phone (through The Pensions Advisory Service) and face-to-face (at Citizens Advice Bureaux throughout Scotland). Anyone aged 55 or over can call 030 0330 1001 for help or to arrange an appointment.
However, the guidance offered by Pension Wise falls a long way short of the free and impartial advice promised by the Chancellor in the Budget last year. While it will cover the broad risks and the tax implications, it won’t help savers identify or buy a suitable product, manage their retirement income or handle the more technical matters.
Those needing more detail will be pointed in the direction of regulated financial advice, but relatively few firms offer services to people with less than around £50,000 to invest.
The good news is that some of the main pitfalls can be avoided through simple common sense, according to Graeme Mitchell, managing director of Lowland Financial Planning in Galashiels.
“Just be careful and if it sounds too good to be true, or you don’t understand it, call Pension Wise or an adviser – we will usually talk (for free) to anyone with a genuine query and you might just save a lot of money.”
One of the biggest threats is posed by so-called “pension liberation” firms offering people a way to access their pensions before the age of 55. They seek to persuade people to transfer their pension to a separate scheme. The individual then receives a loan of half the pension pot, with the remainder going into high-risk, illiquid and usually unregulated investments.
This typically results in significant investment losses that are compounded by charges of up to 30 per cent of the amount transferred and a possible 55 per cent tax bill for an unauthorised payment. Those falling victim to pension liberation scams have no recourse to the Financial Services Compensation Scheme or the Financial Ombudsman Service.
“If it’s under 55 it’s got to be dodgy – don’t touch it,” warned Mitchell.
Other approaches may come from firms offering attractive returns on seemingly acceptable investment opportunities.
If you’re cold-called by a company offering to give you access to your pension or trying to sell you into an investment scheme, find out if that the firm is authorised. This can be done at www.fca.org.uk/register or by calling the FCA’s consumer helpline (0800 111 6768).
“I had a client who before I met him had lost £20,000 to a carbon credit scheme. He was given a legitimate FCA adviser’s name but she was registered at a completely different firm,” said Mitchell. “Look out for so-called sure bet investments like land, forestry and carbon credits and beware pushy sales – if they are legit they can wait.”