One in eight over-50s targeted by pension scammers
More than one in eight of over-50s has been contacted by a pension fraudster, a study by Fidelity Worldwide Investment has found.
Potential victims are told they can release more than the tax-free 25% lump sum or gain early access to their savings by so-called 'pension liberators'.
In almost all cases, people's pension pots are switched into high-risk or non-existent investment schemes, many of which are based overseas. The criminals then routinely take half of the pension pot in charges, while victims will also owe tax to HM Revenue & Customs.
Those most at risk are those aged 50 to 59, with 17% of them being approached by the scammers. The percentage falls to 11% for those aged 60 and over.
Of all the over-50s contacted, some 61% spotted the scam immediately. However, 27% did not and 12% admitted to being interested to hear more and trusted the advice they were given.
From next April, people aged 55 and over will be able to take their entire defined contribution pension pot as cash. At the moment, you can take a maximum of 25% of your pension pot as a lump sum, free of tax. But from next year you can take the full amount as cash (subject to tax) or you can buy an annuity with it or leave it invested so you can draw an income from those investments.
However, 23% of those surveyed by Fidelity didn't know about the changes and 68% didn't know the rules about when early access to pensions (before the age of 55) was possible – for example, if they are suffering from a terminal illness.
Indeed, 59% didn't actually understand that the required age to access their pension as a lump sum is 55.
Alan Higham, retirement director at Fidelity Worldwide Investment, said: "While fraudsters have always sniffed around pension savings, the changes set to come into effect next April have created some confusion among consumers.
"Some understand the rules as equating to immediate access without any caveats and can become very frustrated when they view providers as 'holding on' to their money unfairly. Fraudulent organisations have capitalised on this sentiment, encouraging consumers to hand over their savings without fully understanding the tax penalties incurred."
He urged consumers to take the following simple steps if they are unsure of a caller:
- Never give out details to cold callers
- Don't be afraid to hang up
- Never trust anyone calling who mentions your entitlement to a 'free government review'.
- Never deal with callers who exert pressure for a quick decision - there are no "good deals about to stop"
- If in any doubt, call The Pensions Advisory Service on 0345 601 2923 to check the legitimacy of any plans before signing anything.
Defined contribution pension
Often referred to as a “money purchase” scheme, although offered by employers (who may pay a contribution) these pensions are more likely to be free-standing schemes that a person contributes to regardless of where they are employed. Here, the level of benefit is solely dependent on the accumulated value of the contributions and their performance as investments. Therefore, the scheme member is shouldering the risk of their pension, as the scheme will only pay a pension based on the contributions and investment performance. The final pension (minus an optional 25% that can be taken as tax-free cash) is then commonly used to purchase an annuity that would provide an income for life.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.