Guide to Pension Flexibility 2015

Unparalleled change has arrived when The Pension Schemes Bill became the ‘Pension Schemes Act 2015’ after receiving Royal Assent on 3rd March 2015. Age-Net delves deep into the changes in effect from April 6th 2015 to bring you up to speed on what the Pension Reforms mean for you.

Introduction

For those not in the know, last year, on the 26^th June 2014 the Department for Work and Pensions introduced a proposed bill to parliament in relation to Pension Schemes. Since the budget announcement last year, it’s been quite uncertain times as to what the pension reforms would include and not include.

When the Chancellor unveiled the proposed plans, it packed an almighty punch to those approaching retirement age, raising questions with many about whether to hold off for the year until things were rolled out, or just take their retirement as planned. If you held off, you probably made a wise decision, because those retiring after April 6^th 2015 have more options on how they access their pension pot, and are no longer limited to buying an annuity.

An annuity buys you an income, and depending on the type of annuity you purchase, your pension can be left to your heirs. Because an annuity is an insurance product, you do need to shop around as they are competitive and can have a significant difference to the amount of income you receive when you reach pension age.

Too many people take the annuity offered by their pension provider when they reach retirement age. That mistake can cost you thousands, as the majority of the time; you can find better deals on the open market. Before the changes to the pension scheme, the funds you have in your pension pot, you were essentially railroaded into buying an annuity.

The choices were minimal at best. Short-term, long-term, sole policy or joint. Not much in the way of options. That’s all changed! With the new flexible access rules, the government has decided to bestow the power to you to take charge of your own finances, and we all know that decisions can be quite intimidating when you don’t have sufficient knowledge to base your decisions on.

That’s what this guide is here for.

Telling you as it is about the changes that are in effect, where to get further guidance, and give you the information you need to secure your financial independence and maintain your wealth for as long as possible, and hopefully still have some left over.

The last thing you will want is to let the power entrusted in you go to your head and splash out like crazy, throwing thousands down on a new car, cruising around the world and spending six months of your life living it up in style like you’ve won the lottery. Do that and you could be leaving yourself with nothing other than the state pension when you reach the age of entitlement. No longer are you at the mercy of insurance companies and annuity brokers.

The Pensions Schemes Act 2015 puts the power in your hands to decide what you do with the money you saved over all your hard working years. It’s only fair that since you saved it, that it’s left up to you to decide on how you spend or invest it. You now have the option to access every penny you have in your pension fund from the age of 55.

Regardless whether you retire or not. The news is a godsend for some, because it gives them access to cash at a time they could be doing with it. It opens up the opportunity to pay off mortgages, credit card bills, other debts, and perhaps still have some disposable cash left and be able to decide on how to invest, rather than a pension provider doing it all, and perhaps risking it unnecessarily. For others, it means more decision making on matters that they know nothing about, causing anguish and financial uncertainty. After all, you can’t predict the future. A bus could hit you tomorrow, or you could out live your annuity if you choose to buy one.

Whatever your personal circumstances are, now is the time to be reviewing your financial forecasts, and exercising your right to freedom and choices. The information here is intended as a starting point to put you in the best direction to secure your income after retirement, or even supplement your existing salary, or take some cash to pay off existing debts. That is the significance of the pension reforms.

You do not need to retire to clean out your pension pot. That’s why you need to review and choose the best option applicable to your own individual circumstances, ensuring that the decisions you take now, will help your pension pot last you for the rest of your life.

Summary of the Changes

Previous to April 6^th 2015

You could only cash in up to 25% of your total pension funds tax-free
The remaining 75% of your fund, you could use income drawdown or buy an annuity to guarantee an income
Nominated beneficiaries could take a lump sum payment and pay tax at 55%. That ‘Death Tax’ rate is now abolished. Lump sum payments are now taxed at 45%, and only if the policyholder has already accessed part of their pension fund and death occurs when they are over 75.

Now – If the pension’s untouched, it’s untaxed. Further proposals have been put forward to reduce that rate to the beneficiary’s marginal rate of tax. The marginal rate of tax is the highest rate of income tax you pay. The decision on that issue will not be announced until the April 2016 budget.

The options you have now

When you reach retirement age (55) you can withdraw any amount and even all of your pension funds if you want
Changes to tax rules make it easier to pass savings on to others. You do not need to nominate a relative, spouse or civil partner either – you can nominate a carer, charity, or a friend
Gives you the ability to transfer your Defined Contributions Pensions Plan to a different provider
Free impartial guidance for retirees through the Pension Wise Service (https://www.pensionwise.gov.uk) – This service is the only official free government service available. Under the Pensions Schemes Act 2015, it is illegal for people to impersonate this service. It is extremely important that you know about Pension Wise because with the new freedom and choices you have, there is a high risk and occurrences of scammers attempting to defraud you because you will have access to all of your pension funds when you reach age 55. This is covered more in the pension protection section.
If you choose to use flexible drawdown, you can continue to contribute to your pension funds. You weren’t able to do that before
Pension contributions annual allowances have changed for Defined Contribution pension plans, also referred to as ‘Money Purchase Pension Plans’. The proper term for the annual allowance is Money Purchase Annual Allowance/MPAA. After you access any of your pension funds, the MPAA will be triggered and that reduces your allowance from £40’000 to £10’000. If you don’t touch your pension funds, you can continue to save with a £40’000 allowance, but after you access your pension in any way, you reduce your allowance by £30’000 per annum. If you’re in employment and looking to top your income up by accessing some of your pension funds, you’ll need to take into account your employer contributions too
Those who are part of a Defined Benefit Scheme will be required to seek Independent and Regulated Financial Advice before being able to transfer to a Defined Contribution Scheme
Death Tax Abolished – 45% tax rate is only applicable to beneficiaries of policyholders whose death occurs after their 75^th birthday and the beneficiary withdraws the entire pension fund. It can be kept in Flexi-Access Drawdown, or used as income, in which case it will be taxed at the beneficiaries’ marginal rate of tax.

*Tax on Pension Commencement Lump Sums

(PCLS)

Annuity payments to nominated beneficiaries taken as drawdown or put into annuity are now tax-free when the death occurs before the persons 75^th birthday

Those Affected by the Changes

People aged 55 years and over and part of a Defined Contributions Scheme
People who have drawdown pensions
People who have inherited pension savings

Those Unaffected by the Changes

People who are part of a Defined Benefit Scheme, also known as a final salary scheme
People who have bought an annuity prior to the 6^th April 2015 are not directly affected by the changes * Subject to change in April 2016.

The New Freedom and Choices

Whilst the reforms to pensions are significant, there is only one major change as to how you access your money. Prior to the changes coming into effect, you had either to enter drawdown, or purchase an annuity. The new option that’s been introduced allows anyone who is part of a Defined Contribution Pension Scheme to access all or part of their money and take it out as a cash lump sum (this is referred to as an Uncrystallised Funds Pension Lump Sum/UFPLS) when they reach age 55. If you do choose to take your entire pension in one lump sum, you’ll be taxed on 75% of your pension pot, because the first 25% is payable tax free.

25% of your total pension pot is payable tax-free

The tax you pay will be based on your marginal rate of tax. That will take into account your total income, and not just the funds in your pension pot. For those still in employment, and/or with other sources of income, this does have the potential to push your income tax into the higher rate tax band, resulting in you paying 40% tax on money above your tax band threshold. Should your annual income exceed £150’000, the top rate tax of 45% will apply and you will be hit with a tax bill to top up.

Tax rates:

Those with a taxable income up to £42,385 with a personal allowance of £10’600 pay basic rate tax at 20%
Taxable income over £42,385 pay higher rate tax at 40%
Taxable income over £150’000 pay 45% tax

If you plan to take any lump sum payments from your pension pots, you do need to consider your total taxable income and not just the money that becomes available when you reach age 55.

If you do choose to take out any amount from your pension pot, the first 25% is a tax-free payment. Say for example your pension funds are £20’000, you could withdraw all of it and £5’000 would not be taxable. However, the remaining £15’000 would be taxable and that will be based on your total income for the financial year. Not just the pension funds you release.

If you’re on a salary of £35’000, the extra £15’000 would take your total taxable income for that year up to £50’000, which would push you into the higher rate tax bracket, requiring you to top up the tax shortfall with the HMRC. It will be up to you to ensure your tax is paid. There are no legal obligations on pension providers to get your tax right.

Your tax is your responsibility and if you do fall into the higher rate tax band, you will be required to notify the HMRC and pay all taxes due.

Because of the tax implications on the decision that you make about how you access your pension funds, it’s imperative that you get financial advice before taking a lump sum payment.

That’s what Pension Wise is there for. Even better is to seek the guidance of an Independent Financial Advisor (IFA) who specialises in retirement and pensions. If you can’t afford to consult an IFA, then there is free advice and guidance available through the Pension Wise service. You will need it.

Exploring Your Options

You have three main choices into how you access your pension

1. Withdraw it all as a lump sum (officially termed ‘Pension Commencement Lump Sum’/PCLS)

When you reach the age of 55, your pension pot is yours to do as you like. You can take it all, in which case the first 25% is tax-free, and the remainder is classed as taxable income and taxed at your marginal rate of tax.

2. As and when you like or need additional income

It is possible to treat your pension fund as a traditional savings/bank account. You can make unlimited withdrawals.

The only difference being that 75% of your total reserve is taxable. You do not need to take all or any of it for that matter. You can leave it untouched, in which case it will continue to be invested for growth of your funds by your pension provider. You do have the option to take some of that pot as and when you like. You can take it quarterly, six monthly, annually, or if you need to access cash at any point, you can dip into your pension fund anytime after your 55^th birthday.

Any income you take from the pot that is within 25% of your total funds is tax-free on each withdrawal. If you do use the pot as and when you need to, you will need to keep track of your withdrawals. Any amount that takes you over the tax-free allowance will be taxable at your marginal rate of tax, and will be calculated on top of all other income, including savings.

If your income exceeds £150’000, you will fall into the top rate tax bracket and find yourself paying a tax bill with a 45% tax rate applied. If you’re a basic rate tax payer, that’s 25% more and will leave you with a tax bill at the end of the financial year.

For basic rate taxpayers, you would need to keep your total annual income below £42,385 in each financial year to remain within the 20% tax bracket. Anything above that income level will push your tax rate to 40%, and can result in you paying less tax than you should. If that happens you will receive a tax bill from the HMRC to top up and pay the excess owed.

You cannot be late with your payments either as that will incur financial penalties, so you need to consider that whenever you are thinking about withdrawing from your pension fund. It’s well worth keeping a reserve just incase you find yourself with excess tax to pay. Financial advice can help you understand the tax implications, which will inevitably help you make better informed choices about how much to withdraw without risking financial difficulty later.

3. Take up 25% of your pension tax-free, and leave the rest invested with your pension provider

Many people around the age of 55 still have debts. There may be a few years left on a mortgage, a car to pay off, credit card bills etc. all adding financial pressure to the household income. The ability to access your pension fund is attractive to those looking for extra money to pay existing debts. If that’s the case, you can take 25% of your pension tax-free, and if you need more than a quarter of your fund, then you’d need to pay tax on anything above.

Whatever amount you need, you can take out of your pension fund, and the rest of it can be left with your pension provider and continue to grow your pot. All the options can be mixed, so it is possible to take some of your pension as a lump sum, leave some invested with your pension and use some to purchase an annuity. Then of course, you’ve the option to do nothing at all and just leave all your money in your fund until the time comes that you’re ready to retire and take the extra cash to support your lifestyle and retirement ambitions.

Flexi-Access Drawdown

Prior to the changes, drawdown could be either flexible Drawdown or Capped Drawdown. Now there’s a new option called Flexi-Access Drawdown. Flexible Drawdown and Capped Drawdown are no longer available for policies beginning on or after the 6^th April 2015. Pension providers are not required to offer this option, but you can switch your pension provider to one that does offer you this if you wish.

Pensions are investments. The more money you have in your pension fund, the more you have to invest. Very rarely will a fund manager, or an advisor decide or advise not to diversify your investment portfolio. Most reputable firms will diversify as much as possible to mitigate the risk of you losing more than you invested, thereby ‘potentially’ growing your income. Risk is involved, and it’s important that you know your options before you enter drawdown.

With the new changes allowing you to access some or all of your pension, you can take an Uncrystallised Funds Pension Lump Sum/UFPLS. You can take your pension in one lump sum, for which 25% of your pension is tax-free, or you can take them at intervals with 25% tax-free on each withdrawal you make.

Whatever you leave in the pension fund will be invested. As with all investments, you can lose more than you invest. Taking occasional lump sums as and when from your pension fund, essentially using it as a savings/bank account will affect what remains in your fund for your future income.

As your pension is an investment, you will have options as to how you take an income from your fund, and how you do that will affect how long your pension lasts. The lowest risk method is to withdraw only the natural yields of your investments. All this is means is that the income you take from the fund is only the profits from investments in dividends, shares or both. If you were to draw your income from selling some of your investments, you’d be drawing on capital which carries a higher risk level because the investments remaining may not be enough to cover the amount of withdrawals you make, thereby it has the potential to dwindle your retirement funds.

Before when you entered into drawdown, you’d have those risks associated with your pension fund. Now you don’t have to because you can take it all, part of it and leave part invested, and/or buy an annuity to guarantee a level of income in the future. Flexi-access is more flexible than capped and/or flexible drawdown, as it uses a combination of different withdrawal methods, thereby leaving more capital invested in your pension fund. However, it is not for everyone because the value of investments can go up as well as down.

The previous Flexible Drawdown required investors to have a minimum £12’000 income to access it. Flexi-Access Drawdown does not have minimum income requirement to access it. Flexi-Access Drawdown is the only type of drawdown available from 6^th April 2015. Those on Capped Drawdown or Flexible Drawdown can transfer over to Flexi-Access, however, you will need to check with your pension provider as they are not required to offer this type of product. You may need to switch providers to change to Flexi-Access Drawdown. With the ability to access your pension funds with unlimited withdrawals, in addition to passing on the tax advantages to beneficiaries who receive the funds tax-free does make this an attractable option but it has to be noted that it is not right for everyone.

The Required Reporting Requirements

As soon as you access your pension funds in any way, the Money Purchase Annual Allowance (MPAA) will trigger, and lower your pension contributions to £10’000 per financial year. Pension providers are required to notify you in writing within 31 days of releasing any of your pension funds, the date you accessed the fund and provide you with an explanation of all the possible implications, including the effect on your MPAA. When you receive that notice, you are required to notify the administrators of any other Defined Contribution Pension Provider you are paying pension contributions to within 91 days of accessing your pension funds for the purposes of calculating the annual allowance.

Legal Guidance Guidelines for Transferring Out of a Defined Benefit Scheme

Defined Benefit schemes are different from Defined Contribution Schemes, because they are a form of guaranteed remuneration to employees. They are mostly based on earnings history, how long you’ve worked for your employer and the age you take your retirement. For those in a Defined Benefit pension plan, there is the option to transfer out and move to a Defined Contribution Plan, such as taking out a Self Invested Pension Plan (SIPP).

It is not advised that you take this decision lightly because there could be a number of extremely valuable benefits included in your pension plan, which you would lose if you transferred to Defined Contribution. It’s for this reason that anyone who is part of a Defined Benefit Pension Plan is required to have financial advice given before making a decision to switch their type of pension.

Understanding the difference between Defined Benefit and Defined Contribution

What a Defined Benefit scheme is

Defined Benefits have this name precisely because they are benefit driven. Nowadays, employers rarely use them because this type of pension scheme guarantees a level of income after you retire. The most significant advantage of this type of pension is if it’s index-linked.

If your policy is index-linked it means that that you will continue to receive increases which are usually capped at 2.5% annually. It can also be inflation-linked, in which case your pension would rise in line with the Retail Price Index. The pensions can be paid to spouses, or dependants upon death before the age of 75 and they can also be paid fully to the policyholder should early retirement be necessary due to ill health. Because a Defined Benefit scheme offers you a guaranteed income with additional benefits, it is required that you seek professional advice if you are considering transferring.

Why would you consider transferring out of a good pension plan?

When you transfer out of a Defined Benefit Scheme and move to a Defined Contribution scheme, you can take advantage of the new Pension Flexibility rules and make unlimited withdrawals. Note that the vast majority of Public Sector Pension Plans do not permit this transfer. It’s mostly only available with a private sector pension plans.

What a Defined Contribution Scheme is

The majority of workplace pensions are Defined Contribution. You get back what you put in, plus whatever amount has accumulated over the years. You pay your contributions, your employer contributes, and the government does too. The money in your pension pot will be managed either by trust board members, or it will be contracted out. A contracted out pension scheme just means that your employer has appointed a pension provider to manage the funds. A board trust scheme will have a team of financial professionals who manage the funds on behalf of the group pension holders. All the money pooled by pension providers is invested.

If you’re on a contracted out based pension scheme, you do have more choice open to you because you can have input into how your money is invested. In a board trust based scheme, the board members act on your behalf and are required to act in your best interests.

How much pension you receive will be affected by the performance of the pension providers’ investments. There’s also the management fee associated with your pension which will affect the amount of income you receive from it.

Due to the vast differences between the two types of pension plans, it’s advised that you seek financial advice before making any rash decisions.

Transferring between Defined Contribution Pension Plans

It’s estimated that the average working person can have as many as 11 different pension plans. This is because of all the options there are including SIPPS, stakeholder pensions and the defined contributions pension plans. In addition to that, whenever you have been between jobs, or moved from one company to another, you’d move onto a different pension provider.

The more jobs you’ve had, the more likely it is you’ll have more than one pension. That’s in large part due to auto-enrolment. When you are paying into a defined contribution pension plan, you are not paying into your employers pension scheme. You pay into your own personal pension pot, for which your employer appoints a pension provider to manage the fund. The money you pay is yours and is not lost when you leave a job. It remains in your pension pot, being invested and hopefully growing your retirement income. If you do have more than the one pension, you can transfer all or some of them to one pension provider of your choosing. If you do decide that you’d like to do that you will need to speak to an advisor about how your money will be invested, the level of risk involved, and the diversity of their investment portfolio. The better the service from the pension provider, the safer your money will be.

Certain Annuity Payments to Beneficiaries are now Tax Free

The government are still in a consultation phase about the current annuity market. The general consensus is that for those who have recently retired, they have missed out on the new flexibility rules to pensions and are now instead locked into low yielding annuities.

As things stand currently, it is possible for pensioners to sell their annuity, provided they find a willing buyer. The income generated from the sale of those annuities are taxed at 55%, rising to 70% depending on the selling price.

So right now, if you are one of the estimated 5 million annuity holders locked into a low value annuity, then it is best to hold onto what you have, at least until April 2016, when the new budget will clarify the selling of annuities for existing annuity holders.

The existing high rate tax of 55% rising to 70% will be removed and when annuities are sold, the income generated will be taxed at your marginal rate of tax instead. Following the sale of an annuity, the new freedom and choices under the Pensions Scheme Act 2015 will apply, enabling many existing annuity holders to benefit from the pension reforms. When the changes do come around, there will not be an open market, meaning those with annuities looking to sell, will only be able to sell to ‘institutional buyers’ i.e. investment and other financial firms regulated by the Financial Conduct Authority. You will not be able to buy an annuity from someone else.

The Tax Situation on Annuity Payments

Retirees with a joint-life annuity, a guarantee period, or value protection element can leave their income to anyone they wish. If you have an existing annuity, you will need to check your policy or contact your pension provider to find out about any restrictions that may be applicable to your policy. If you die before you reach your 75^th birthday, the remaining time left on your annuity can be paid to your nominated beneficiary, depending on the type of annuity you hold.

Beneficiaries will not be taxed on inherited pension funds. The date the tax-free element came into effect was 5^th April 2015.

Anyone who died after 3^rd December 2014, aged under 75; the beneficiary will only receive the tax free income on payments received after the 5^th April 2015. Any income paid through an annuity prior to that date will be taxed at the beneficiary’s marginal rate. For annuity holders when the death occurs over the age of 75, the beneficiary’s marginal rate of income tax will apply to their whole income, including salary and the pension income as a whole.

Another substantial change is to the tax rules on inherited pensions. If a policyholder died before the age of 75, the pension could only be passed on tax-free when the pension fund had not been touched. Any money taken from the pension fund meant that the person inheriting the pension fund would be stung with a 55% tax rate. This is one you will be familiar with as the ‘Death Tax’. It has been abolished, but only if the policyholder dies before the age of 75. When a death occurs over 75, tax will be applied to the entire fund, but the rates are where things matter.

When a person dies over the age of 75, their beneficiaries have a few options

Take the entire pension fund as one lump sum. If they do this, it will trigger a 45% tax rate on the entire fund
Use it to enter into drawdown, bringing in additional income, or purchase an annuity for which they will only be taxed at their marginal rate of income tax
Take occasional lump sum payments from the fund, for which it’s the individual’s tax rate that will apply.

Any pension funds inherited as a result of death prior to reaching 75 is now payable tax free. Tax only applies to pension funds when the death occurs over the age of 75.

Private Pension Contribution Limits

Because your pension is part of a savings scheme, there are incentives there to encourage you to invest in your pension for fund growth. There is no limit on how much you can pay into your pension fund, but there is a limit on the tax relief available to you each year.

The current money purchase annual allowance for tax relief on pension contributions is £40’000. This reduces from April 6^th 2015 to an annual allowance of £10’000 for those who have a Defined Contributions pension and begin accessing the funds. The first withdrawal you make from your pension fund, will reduce your annual tax relief allowance by £30’000.

Remember that it’s not only you paying into your pension fund. Your employer and government contributions add to your pot too, so you could pay £4’000 in a year towards your pension contributions and find yourself over the annual allowance and subject to tax.

You can still pay in more if you like to help your funds grow faster, or to give your pension pot a boost if you’re looking for a better retirement income. It just means that after you access your pension, if you go over the annual limit of £10’000, the additional contributions will not benefit from tax relief.

Introduction of Free Impartial Advice Service

Due to the complexity of the pension reforms, tax rules, and the power of choice you have, you do need professional advice, as there are far too many pension options around for you to be expected to know what your best choice would be.

Not everyone has the income to afford the services of an Independent Financial Consultant, but the advice is being made freely available to everyone over the age of 55, or even approaching 55 years old. The Pension Wise service is a free impartial advice service available to everyone, regardless your income and it is encouraged that you contact them when you’re nearing 55 years old. The only thing Pension Wise cannot provide you with are recommendations on pension products. It will be an advice service only and not for recommendations.

Only Financial Advisors regulated by the Financial Conduct Authority can advise on pension investments, and different products, and give you advice on what the best option would be based on your individual circumstances.

The Pension Wise service operate in conjunction with the Citizens Advice Bureau, the Pensions Advisory Service, and the Financial Conduct Authority to ensure that everyone has access to the advice, along with a reliable resource to find out all about your options, and your rights as a consumer.

Pension Protection from Pension Scams

The Financial Conduct Authority and the entire pensions industry are aware of a heightened threat of scams and risky investments taking place throughout the country and online. The risk has been increasing since the 2014 budget announcement of reforms to pension policies.

Since the first announcement, there’s been a surge in pension scams, including agents cold calling and claiming to be representatives of the government’s Pension Wise service. There have also been fraudulent websites set up, offering free pension reviews. The Police, the National Crime Agency and regulatory bodies are working together to suspend the website accounts, preventing those unsuspecting from falling prey to the scams.

We have included a list of resources below which are established, trusted and secure official websites, where you can obtain notable advice surrounding the new Pension Flexibility changes. If you’re researching other places around the internet, click a link in an email, or perhaps visit a website after receiving a text message, you might find yourself greeted by Action Fraud with the following message…

Pension scams You may have been redirected to this page from a suspected Pension Fraud website. Action Fraud and the National Crime Agency have been working with Law Enforcement and Regulatory partners to suspend these websites to protect the public.

These scams are cyber crime and the police’s cyber crime unit are working to do what they can to suspend the accounts of scammers and fraudsters. Whenever an account is suspended, the website name that you enter into the address bar in your browser or click a link to visit a suspected fraudulent website, it will automatically redirect you to the police notification page. Essentially returning you to safety. It’s nothing you’ve done, and it’s certainly worthwhile to heed the advice they provide on that page.

If you do find yourself on a suspicious website, you can also use the page to notify the authorities of suspicious websites. Victims of these types of scams stand to lose thousands.

One victim has already been stung for £200’000. Prior to the pension reforms, fraudulent pension schemes were around, but nowhere near as much as they are now. Before, this type of fraudulent activity needed to be structured as a legitimate business, registered with the HMRC, and regulated by the FCA. The fraudulent activity focused on getting pensioners to transfer their pensions to a different provider. This is known as pension liberation, where the victim parts with their pension on the promise of a higher yielding return. The investment doesn’t happen, and the company dissolves – the pension gone. Now, with consumers having the power to invest wherever they feel there’s a good deal to be had, it’s made it much easier for scammers and fraudsters to lure people into parting with their pensions.

One warning you cannot ignore is unlocking your pension before you reach 55. This is an unauthorised withdrawal and as such will be subject to a heavy tax charge. Victims of this type of scam can lose all of their pension funds, and be left with substantial amounts of debt to the HMRC for unauthorised access. T

he only time you can withdraw your pension before you reach 55 is if you are in ill health. Even if that is the case, always approach the official Pension Wise service for advice first before attempting to withdraw your pension before the eligible age.

With the radical reforms to pensions, those approaching and over the age of 55 are at risk. Scammers know that there’s a lot of changes happening, and they know that not everyone is fully aware of all the changes to pensions that have happened. Cold calling on your telephone, spam emails, spoof emails, and text messaging are all disguised attempts to get your attention and once they have it, it’s promises of cash riches, and unlocked pensions before you reach 55, and if you’re already over 55, it’s risky investments they will try to con you with. For a one-off fee, usually accompanied with a high percentage return. Pension loans is another scam being used. The people involved aren’t only employing technology to scam and con people, but they are also going door to door.

In the run up to the pension changes coming into effect, the risks were severely heightened, with all financial bodies issuing pension scam warnings. Those approaching 55 years old, and those over that age are being targeted. Cold calls, emails, text messages, letters, door-to-door pension review services, and pension liberation services are all to be avoided. Right now, it is a fraudulent frenzy because people are not fully aware of all the changes to pensions.

Do not be fooled. Anyone or company who tries to market any pension scheme will be dodgy. The Pension Wise service will never call you, and all other professional, regulated advisors do not work for free, so you will not be called to receive a free pension review. Nor should you be called for any unsolicited marketing of pension schemes. The industry is regulated for a reason. To prevent misinformation leading consumers to making poor investment choices.

Your pension funds are you and your families future, and you need protect them. Do your homework on any advisor or company you are considering seeking advice from and run their details through the official Financial Services Register to make sure the people you deal with are the real deal.

The most reputable organisations and pension advice resources are provided below.

Resources

Pension Wise Free impartial advice for retirees aged 55 and over. The service is run in conjunction with the Citizens Advice Bureau, the Pensions Advisory Service and overseen by the Financial Conduct Authority.

The Pensions Regulator This is the regulator body for workplace pension schemes

The Pension Advisory Service Provides free and impartial information on matters relating to pensions

The Money Advice Service A collective resource of work, pensions, and retirement information can be found directly through this link

The Pension Tracing Service – This is a free service operated by the Department of Work and Pensions and will be a valuable resource for those who have paid into more than one pension scheme

The Financial Services Register – Pension advice is only free from the Pension Wise service. Any other advice from financial firms, or Independent Financial Advisors are not free. Before you deal with anyone claiming to be regulated by the Financial Conduct Authority (all finance professionals are required to be), get their details and run a search through the database to find out if they really are who they say they are.

Pension Scams – Advice and factsheet on scams from The Pensions Regulator. If you’re approaching retirement, you absolutely need to be wary.

Pension Scams information from the Action Fraud team of the Police – If you happen to land on a suspected fraudulent website trying to defraud, or scam, and it has been reported or discovered by the police, you will be redirected to this web page. It is essentially an automatic redirect to return you to safety. There is a range of advice and further resources on that page to prevent you from becoming a victim of fraudulent activity.

The Financial Conduct Authority – The regulatory body for the UK financial sector

Citizens Advice Consumer Experience Report to Pension Scams – The Citizens Advice Bureau are the face of the Pension Wise service. It is where you go for your consultation to receive free and impartial advice about accessing your pensions. The link above will take you to the Citizens Advice Policy Publications page, where they outline the types of scams being used, the contact routes utilised, the tactics used and the far-reaching impact the scams have on consumers.

Ofcom Advises on Dealing with Nuisance Calls – The communications regulatory body provides advice to consumers on what to do if you do receive nuisance calls or are worried about pension scams communications, either by telephone, text message, email or any other form of communication.