This week marks what The Daily Telegraph is calling “arguably one of the biggest social and economic revolutions of the past 50 years” – the introduction of George Osborne’s pension freedoms. Assuming they can get their pensions provider to agree to it (and they haven’t already bought an annuity), the over-55s can now withdraw money from their pensions as and when they wish, subject to paying their marginal rate of income tax on anything over the first 25%.
You could think of this as an “administrative adjustment to recognise all of our changing financial services”, says the paper. But it’s more than that.
It “represents a fundamental break in the statist nostrums that have held sway in this country since the end of World War II: the assumption that people cannot be trusted to make their own decisions and always need to be told what to do”.
We entirely agree. But we also worry. Pensions fraud has always been a problem in the UK, but with some five million people set to hit 55 in the next five years, the new system introduces an entirely new range of risks. Some 15% of the over-55s already report having received suspicious calls.
So how do you behave in the face of all this potential fraud? You expect to be targeted (because you will be) and you treat all financial communications as automatically suspect. Turn down any “review” offers, advice or investments that you didn’t actively seek out yourself, says Laura Shannon in The Mail on Sunday. Reject all cold calls and “do not believe anyone who says they can help you access your pension before you are 55”.
More specifically, be particularly suspicious of anyone offering you returns above the norm (it’s tough to get even 4% from a proper investment these days) and of anyone offering you a time-limited offer. If there is a bonus or a discount available if you “invest” before a set date, there is a high chance that the investment is a scam. Finally, keep in mind that withdrawing cash from your pension beyond the first 25% means a whopping tax bill. That should be the first thingany responsible adviser talking to you about your pension should mention. If he doesn’t, we can pretty much guarantee you are in the wrong place.
If in doubt, or for more on how to tell a scam from an opportunity, visit the Financial Conduct Authority’s scamsmart.fca.org.uk website. You might also contact the new government information service Pension Wise, or spend some time on moneyweek.com reading the material we have put together on the dos and don’ts of pension reform. As Shannon says, when it comes to using pensions freedom, “only fools rush in”.