Scam warning as record 55 year olds access pensions
Access to pensions was granted in 2015 (pic: Phoenix Life)
A record number of UK adults will reach ‘pension freedom’ age this year amid concern that they will be targeted by scammers exploiting the impact of coronavirus on people’s income.
Pension freedoms were introduced by former Chancellor George Osborne in 2015 enabling those aged 55 and above to access their pension pot.
Almost one million (940,971) people will hit their 55th birthday in 2020, or more than 18,000 every week.
New data released by Aviva also predicts that the next decade should see more people reach their 55th birthday – 9,063,137 – than in any decade gone before, and likely any decade that will follow.
Many people have taken advantage of pension freedom to finance big events such as weddings and once-in-a-lifetime adventures, while many have drawn cash to start or sustain a business.
Fewer than were first feared have blown their entire savings on frivolous spending with most taking a cautious approach.
However, there has been a rise in fraudulent activity. In March Action Fraud, the UK’s national reporting centre for fraud and cybercrime, announced a 400% rise in fraud-related offences. The number of pension scams is expected to soar during the coronavirus (COVID-19) pandemic, as opportunistic scammers attempt to take advantage of the economic uncertainty.
The Pension Scams Industry Group has launched Scam Man & Robbin, an online game to support awareness of pension scams fraud.
Phoenix Life warns that scammers can be articulate and financially knowledgeable, with credible websites, testimonials and materials that are hard to distinguish from the real thing.
Scammers design attractive offers to persuade individuals to transfer their pension pot to them or to release funds from it. It is then invested in unusual and high-risk investments such as overseas property, renewable energy bonds, forestry, storage units, or simply stolen outright.
Alistair McQueen, head of savings and retirement at Aviva said: “The pension freedoms have been hugely popular since their introduction in 2015. To date, more than £35bn of taxable pension wealth has been withdrawn by more than 1.4 million people.
“But this year, pensions freedoms are due to boom like never before, as more people celebrate their 55th birthday than any year prior, and likely more than we will ever witness again in a single year.
“This spike comes at the same time as the coronavirus pandemic has stopped the UK economy in its tracks.
Be cautious in taking any short-term action that could be detrimental in the long-term– Alistair McQueen, Aviva
“Early insight suggests that the nationwide lockdown has increased the financial strain on millions of households. 6.3 million jobs have been furloughed, and 85% expect the general economic situation to get worse over the next 12 months.
“Age 55 marks the point at which we can access our pension funds. But we must be cautious in taking any short-term action that could be detrimental in the long-term.”
He advises five points to consider when considering accessing pension money:
You are in control: 55 is the age from which we can access our pension wealth, but there is no need to act at this age. You are in control of when and how you access your private pension wealth, from age 55. And remember it could be needed to fund your life into your eighties and beyond.
Taxation: 25% of your private pension wealth is usually tax free, but the rest will be taxed like other income. The rate at which you access our money can, therefore, have big implications for tax you may pay. Aviva has a free online pension calculator to help you estimate your potential tax liability.
Annual allowance: The majority of people are allowed to save up to £40,000 in their pension each year. But the act of withdrawing taxable money from a private pension could reduce the amount we can subsequently save, to a maximum of £4,000 each year. This reduced level could have significant implications for your future retirement plans.
Scams: Sadly, fraudsters follow the money, and there is a fear that pension scams targeting will increase for those at their 55th birthday. Since 2019 it has been illegal to make unsolicited contact with people about their pension. So, if you receive a cold call or unexpected text, just hang up or delete it. Do not feel pressured to rush any decision that could have implications for the rest of your life.
Pension Wise: The government-backed Pension Wise service provides free guidance about all things related to the pension freedoms to those aged 50 or over and have a personal or workplace pension. And they can be contacted online or by telephone.
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