After just a year of ‘development’, the first few days of Pensions Freedom were always going to be interesting.
Some people were predicting ‘pension Armageddon’ with thousands rushing to cash in their pension, whilst others thought it would pass more quietly.
So what actually happened? Here are five things we’ve learnt in the first week of Pensions Freedom.
#1: The pension scammers are out in force
Pension scams are nothing new, but the new rules certainly seem to have given scammers and cold callers fresh impetus.
Even as this article was being written, the author received a cold call and told he was being called “on behalf of the Government about the new rules.”
This is clearly untrue and designed to mislead.
Scammers look to make money from unsuspecting pension investors, by taking large fees after recommending pension transfers, or by selling investments which are often unsuitable, unregulated and high risk.
We believe cold calling to sell financial products should be outlawed, until then these three simple rules should keep you safe:
- Never buy a financial product after a cold call
- Only take advice from a financial adviser regulated in the UK by the Financial Conduct Authority (FCA)
- If you want to find a financial adviser ask for a recommendation or use directory such as www.unbiased.co.uk or www.vouchedfor.co.uk and check they are registered with the FCA by clicking here
#2: Financial advisers may say “no”, but for good reasons
People generally pay into a pension to help fund their retirement. But it’s clear some people will use the new rules to take money out of their pension to spend frivolously. This could leave them unable to make ends meet when they retire.
We know financial advisers are being asked by both existing and new clients, to help with the process of taking lump sums from pensions.
This places advisers in a very difficult position. On the one hand the money in a pension belongs to the saver and under the new rules they are perfectly entitled to take it out after the age of 55. On the other hand however, advisers cannot be seen to recommend a course of action, for example taking a large lump sum to spend on a holiday, which will leave you unable to pay your bills in retirement.
Therefore, if you approach a financial adviser who refuses to help you access your pension, because he or she doesn’t believe it is in your best interests, take time to listen to them, they might just be right!
#3: Pension providers are being inundated with calls
Four leading pension providers, including Standard Life, reported receiving at least 3,000 calls each about Pensions Freedom, on the first working day after the Easter holidays.
There were common themes amongst the callers, including how and when they could access their pension pot and how they could sell an existing Annuity.
Of course calling your own pension provider is the natural thing to do if you have a question about your pension, but there are other resources available. If you are over 55 you could book a ‘guidance’ session with Pension Wise, who it seems have significant spare capacity. Or, you could talk to an Independent Financial Adviser, many of whom are happy to have initial conversations without cost or obligation; something we are very happy to do here at Investment Sense.
#4: Getting your cash out isn’t as simple as you might think it should be
The new rules allow anyone over the age of 55 to take money directly from their pension; the technical term is Uncrystallised Funds Pension Lump Sum or UFPLS for short.
However, it isn’t as simple as it sounds; although to be honest, nothing about UFPLS sounds simple!
Pension providers don’t have to offer UFPLS and many haven’t been able to update their computer systems in time. Of the pension providers who do offer UFPLS, many won’t do it without an adviser agreeing it is the right option and as we’ve previously shown, advisers are reluctant to recommend that their clients take significant lump sums from their pension, if it will harm their retirement.
So where does that leave people who want to take money from their pension, as the new rules clearly allow? In a tricky position and with no immediate answers.
Only time will tell how this particular unintended consequence of Pensions Freedom will play out.
#5: Getting through to the taxman isn’t that simple either
The message, that taking lump sums from your pension could trigger a large tax bill, thankfully seems to be getting through.
As part of a ‘second line of defence’, pension providers must warn savers about the tax consequences of taking lump sums from their pension and it seems many people have been calling HMRC for more information.
According to the Telegraph, up to one million callers to HMRC on Wednesday found lines engaged all day and were played a recorded message suggesting they call Pensions Wise. Unfortunately Pensions Wise are unable to calculate exact tax liabilities.
We’re here to help
The new rules are complex, and whilst some people might be tempted to dive straight in to take money from their pension, we would suggest waiting until you have at least had chance to take advice. Doing otherwise could lead to a very expensive mistake, which might make you a lot poorer in retirement.
We’re here to help guide you through the new rules and to help you avoid the pitfalls.
Call Sarah or Bev today on 0115 933 8433 or email info@investmentsense.co.uk
