By Pat Hutchinson, District Manager, Newtownabbey CAB
Q: I am 56 and have a personal pension. I have been told there are new rules, can you tell me what they are?
A: You’ll be reading a lot in the next few months on how the pension freedoms will work from next April.
If they apply to you, you may well already be celebrating the good news. However, there is another group of people - fraudsters and scammers - who are just waiting to get their hands on your money.
This week the City watchdog, the Financial Conduct Authority, has launched a campaign to make people aware of investment scams.
In terms of pensions, the Government has just announced the latest stage in its pension reforms which will allow more people to draw money from their pension funds instead of buying an annuity, and for those already doing so, or planning to do so, to draw money more flexibly and with less of a tax charge.
The feature that most people seem to be celebrating is the abolition of the so-called “death tax” - the current 55 per cent tax charge on unspent savings belonging to anyone drawing their pension who dies over the age of 75.
The new rules will also allow people to take the 25 per cent tax-free cash that pension schemes allow in bits and bobs rather than as a lump sum, as they must now.
Putting more flexibility into the system, and allowing people to leave unspent funds to their loved ones instead of the taxman, is bound to make pension saving more attractive. But it could also mean that the unwary fall victim to vultures keen to get their hands on this newly-released cash.
The most important thing to be aware of is that the pension reforms apply only to people who qualify to take their pension - in other words, those who are over the age of 55. If anyone suggests that you can release cash from a pension and you are under the age of 55, or that you should switch out of a final salary pension to get hold of a lump of cash - to pay off debts or invest in another scheme - this is almost certainly a scam and alarm bells should immediately start ringing, however attractive and convincing the offer looks.
Beware particularly of get-rich-quick investment schemes. Many pension funds, particularly those that are “lifestyled” in the run-up to retirement, are conservatively invested. This means you won’t see spectacular gains, but you won’t make spectacular losses either - which is important, because the nearer you get to retirement the less time you have to recover any losses that you make.
Anyone suggesting that you should transfer your funds to another pension, or withdraw funds to invest in something more productive - particularly anything unusual, such as wine, precious stones or metals, development land, small companies or new inventions - should once again be treated with extreme suspicion and avoided.
Anyone who “cold calls” you - rings you out of the blue - should be avoided, too. Be aware that sometimes scammers will mail you with an interesting brochure, or stick a leaflet through your door inviting you to apply for more details.
If you respond, and give out your phone number, you may have unwittingly given them permission to call you and give you the hard sell. Don’t fall into this trap.
Your pension is important for your comfort in retirement. So, while it is great that people who want more flexibility can have it, bear in mind that the new rules throw wide open the doors to fraudsters and scammers.
If you are unsure how to make the most of your pension, it is really worth paying an independent financial adviser to look at the best options for your circumstances.
Never take up the offer of “free advice” from someone you don’t know or you’ve met down the pub. Only ever use a reputable independent adviser authorised by the Financial Conduct Authority.
More information on how to avoid investment scams is available online at scamsmart.fca.org.uk
• Get free, confidential and independent advice from your nearest Citizens Advice Bureau or log on to www.adviceguide.org.uk
Call Newtownabbey CAB, Dunanney Centre, Rathcoole on 028 9085 2271 or email firstname.lastname@example.org