The pension pot dilemma: beware the scammers
Have you received your first pension pot cold call or text yet? No sooner have the PFI hunters run out of leads, a new 'opportunity' has been given to unscrupulous so called pension advisers as a result of the Taxation of Pensions Act.
On October 9th the Pensions Regulator published details of its investigation into a suspected multi-million pound scam case and warned savers to remain vigilant against the ongoing threat of scams.You can read the details here.
Frank Field, Chairman of the Commons Work and Pensions Committee has said in a statement "these reforms have been in operation long enough for the scammers to get going, working on defrauding people out of their life savings".
In May, shortly after the pension freedoms were enacted, Sunday Times has conducted a mystery shopping exercise, contacting fifteen companies offering help to release cash from a pension and the results were described as "petrifying", with misinformation being provided by a number of of the companies, which could result in people being faced by crippling tax bills and loss of this most important asset. Which? points out that some of the pension products on the market offer very poor returns, that "people could receive £10,000 less from a £36,000 pension pot with some products on the market".
"Good quality, co-ordinated and accessible guidance and advice will be the best tools to ensure people make the best, informed decisions about their retirement savings and protect them form scammers" argues Mr Field.
The Government Pension Wise website https://www.pensionwise.gov.uk will offer you guidance but not advice based on your personal circumstances and anticipated needs, although according to Mr feild the take up has been low, partly because the guidance givben is very generic.
So where do you go for some advice? Perhaps a good place to start would be local investment managers – they are local, not hiding behind an anonymous and untraceable web address, offer a personal service and you know where they are based. Here is what our local investment experts would recommend.
Lloyd Kafton, of Cedar Financial Services
Urge on the side of caution! Whilst the option to release money from your pension to pay for a holiday, home improvements or to gift to family may be tempting, there can be severe ramifications on doing so. People who exhaust their pension pot may utilise their retirement funds too early leading to a reliance on state benefits, and the tax consequences of pension withdrawals (at a person's marginal rate of tax) could potentially lead to high and unnecessary tax charges. It is pivotal to seek expert Financial Advice before withdrawing funds from your pension.
Before you empty your pension pot, please remember that the UK State Pension pays out no more than £113 per week. In today's economic climate, this is insufficient to meet the costs of living, including groceries, heating, utilities and clothing. Whatever the outcome of the general election, the deep national debt problem will mean that pensions and other state benefits are being squeezed. If you need to raise some cash in your late fifties or sixties, there may be other more equitable ways of doing it, such equity release.
more details about Cedar House Financial Services here
Jan Thompson of Jan Thompson Wealth Management
From April this year, the government has given people over the age of 55 the freedom to use their defined contribution pension how they like. According to Chancellor George Osborne, the new freedoms represent "the most radical change to how people can access their pension in almost a century". People who value the security of an annuity can still purchase one, but those who want more control over their own finances can, instead, draw down their pensions as they see fit. The changes mean greater flexibility in how you can use a pension to receive an income and pass on benefits to your family and others. Taking advise is key in ensuring you arrive at the right solution, as a pension fund is something that people have worked long and hard for.
more details about Jan Thompson Wealth Management here
George Ttouli of Burlington Wealth Management
I agree you should avoid entertaining any cold approach. You seriously wouldn't discuss your personal finances with a complete stranger? The best way to find a good trustworthy adviser is to ask friends or relatives if they have an adviser themselves. You can be reassured that they have experience of using this adviser for their own needs and if they are happy with the service they receive they will be happy to introduce you. Alternatively N21 online is a great source of introduction to any service!
I haven't noticed an increase of exotic cars in the neighbourhood. Since the Chancellor made his announcement in the Budget of March 2014 about the new pension freedoms I have had many tentative enquiries from clients asking about the possibility of cashing in their pension pot. I usually respond by asking "if you are over 55 you can draw funds from your pension but do you have another means of income at retirement?" For many the point of saving in a pension was to provide financial support in retirement. Then there is the issue of tax. Most individuals I have spoken to have misunderstood the amount of income tax they may have to pay on drawing from their pensions. Clearly this is an area that needs advice. There are many ways to draw cash from pensions. Do you know your UFPLS ( Uncrystallised Funds Pension Lump Sum ) from your FAD ( Flexi Access Drawdown ?) Where does this leave annuities?
I have provided financial advice since 1986 and consider myself well placed to help. Please feel free to contact me for any assistance without obligation.
George Ttouli Dip PFS
more details about Burlington Wealth Management here