It’s been 6 years since Pension Freedoms was first introduced. They gave retirees greater choice in how they can access their pension, and further increased the need to make important decisions about when and how to do so. The downside of this is that it has also made peoples pensions an attractive target for evil fraudsters.
Recently, a lack of Pension Freedom safeguards has caused some retirees to fall victim to scams and has also made the national headlines. Talking to FT Adviser, Steve Tims, chairman of the Work and Pension Committee, said the lack of safeguards has been “life-ruining” for some.
According to the FCA, over £30m was lost to pension scammers between 2017 and 2020. The amount that individuals lost varied, however one victim lost over £500,000. In a lot of cases, the money lost cannot be recovered, so getting hit by a scam could have a devastating lasting impact on your retirement plan and quality of life. With a lot of scams going unreported, the ones that are reported are only the tip of the iceberg.
Being one of the largest assets many people have, it is easy to see why scammers are targeting peoples pensions. A severe lack of awareness around how pensions actually work and the ways in which they can be accessed are also valuable for scammers, as this allows them to capitalise on people’s ignorance. By understanding how you can access your pension will help you to reduce the risk of becoming a victim of a scam.
Keep Track Of Your Pensions
While it may be years before you can get access to your pension, it is crucial that you keep track of it. It will help you to hold a better understanding of your retirement provisions and means you will be much better informed if you are targeted by scammers. Despite the importance of maintaining pensions for long-term security, it is something a lot of people are overlooking.
According to research by Unbiased, 1 in 5 Brits don’t know the value of their pension. The truth is that by not understanding your pension and how much it is worth can provide scammers with the ammunition they need to exploit you. It could also mean that you aren’t as careful when making big decisions like this or talking through your pension as you would be with your other assets.
It is also important to understand when you can access your pension. Many scammers claim they have the ability and knowledge toc “unlock” your pension early using legal loopholes. However, always remembers that your pension is not accessible until you are 55, which rises to 57 in 2028. The idea of being able to access your savings early can seem like a truly tempting offer, but you must be aware that it is a red flag and you need to be vigilant.
There are only a few exceptional circumstances where you could be allowed to access your pension early, such as a terminal diagnosis or illness. In these rare cases, however, you should talk directly to your pension provider.
How Can I Access My Pension?
Alongside knowing when you are able to access your pension, getting to grips with the various options can give you the tools to spot a scam.
- Take lump sums: You can withdraw lump sums out of your pension as and when you see fit. You could take a 25% tax free lump sum if you decide to. However, you need to fully understand the long-term impact of taking a lump sum before continuing. In certain cases, scammers have managed to persuade retirees to take out their cash and move it into very attractive sounding investments. Always cautiously weigh up the investments and think about how they may fit into your plans.
- Purchasing an annuity: The Purchase of an annuity provides you with an income, guaranteed for life. You would withdraw some or perhaps all of your pension savings to buy the specific product, which will then provide a regular income you can depend on. If you are worried about security, an annuity provides financial stability. As with any other financial decision, do not rush and be sure you’re dealing with a trusted provider.
- Taking a flexible income: Using a flexi-access drawdown will allow you to take out a flexible income from your pension pot. If you think your income needs will change during your retirement, this can be very valuable. It could also mean that you find yourself on scammers radars, as you will be able to make withdrawal significant lump sums.
You are not limited to 1 option – you are able to mix the different options to create a pension income that fits your needs.
Remember, you don’t need to access your pension once you hit pension age. You can decide to leave it where it is until you are ready to start taking an income from it. Your pension tends to remain invested. Always consult an FCA regulated Financial Adviser.