Do you know when you can access your pension? Research has found that the number of people trying to access their pension early is on the rise, and it’s a misconception that scammers are taking advantage of.
Accessing Defined Contribution pensions
It’s important that you understand when and how your pension can be accessed. It means your retirement plans are based on accurate information and it can protect you from scammers.
If you have a Defined Contribution pension, where you and your employer make regular contributions and the savings are invested, your pension is usually accessible at the age of 55, this will rise to 57 in 2028. Accessing your pension before this point is only an option in exceptional circumstances, for example, following a terminal diagnosis.
When you reach 55, there are several ways your pension can be accessed. This includes purchasing an Annuity to create a guaranteed income for life or taking an adjustable income, where you’re responsible for ensuring withdrawals are sustainable. It’s important that any decision about your pension is carefully considered, some decisions cannot be reversed and can have a long-lasting impact on your retirement finances.
Spike in pension savers trying to access pensions early
Despite pensions not being accessible before 55, figures show that some savers are trying to access their pension early. In some cases, this is many decades before retirement age.
According to online pension provider PensionBee, the number of people looking to withdraw their pension before the minimum age has increased six-fold in just three months. In December 2019, five people attempted to access their pension early by March 2020 this had increased to 31. Worryingly, the median age for people seeking to access their retirement savings early was just 35.
There are many reasons why people may be seeking to access their pension early, but one concern is that they’re being targeted by fraudsters taking advantage of a lack of awareness and worries about financial insecurity caused by coronavirus.
It’s not just those that are younger than the pension age being targeted by scammers either. Any significant event, like Covid-19, can lead to a rise in fraud and new types of fraudulent activity. It’s easy to see why pensions are targeted by criminals. They’re often one of the largest assets you own and, if retirement is some way off, the scam may go unnoticed for many years.
Previous figures from the Financial Conduct Authority (FCA) highlight just how devastating pension scams can be. The average amount victims lost was £82,000, a sum that would have taken years to build up. With a quarter of people (24%) admitting they took 24 hours or less to decide on a pension offer, decades of savings can be lost in a day.
In many cases, it’s impossible to recover lost pension savings and you may have little opportunity to build years of savings back up. Understanding your pension and the way fraudsters operate could save your retirement.
Spotting signs of fraud
Knowing when you can access your pension can help you spot when fraudsters are behind offers. There are common signs that you’re being targeted, including:
- Offering to ‘unlock’ your pension: ‘Unlocking’ is often a phrase fraudsters use when claiming you can access your pension before turning 55. As mentioned above, this isn’t possible in the vast majority of circumstances. If you believe your case comes under the exceptional circumstances, you should contact your pension provider directly rather than going through a third party.
- The offer of a ‘free pension review’: At the point of retirement, you have to make some big decisions about your pension and how you access it. It’s natural to want support and it’s strongly recommended that you seek professional advice. The offer of a free review can certainly be tempting but it’s often used by scammers to gain your trust. Before you share any personal details, make sure the person or firm you’re dealing with is legitimate by checking the FCA register.
- Claims of guaranteed returns: As pensions are typically invested, and may continue to be even once you start accessing savings, returns may play an important role in retirement plans. As a result, it’s not surprising that scammers offer guaranteed or high returns when trying to persuade you to hand over money. Remember, all investments involve risk and there are no guarantees when investing. If it sounds too good to be true, it probably is.
- Unusual investment propositions: Investing can be filled with jargon and may seem complex, criminals take advantage of this by offering unusual investment options, often while claiming they’ll deliver higher than average returns. Don’t invest in anything you don’t understand and keep an eye out for common scams such as overseas properties or forestry developments.
- Pressure to make quick decisions: Investment decisions will have a long-term impact on your retirement. Don’t be rushed into making any decisions and always take some time to fully consider your options. Scammers rely on you making snap decisions without fully thinking through the consequences, genuine advisers you want to work with will understand why you want to take some time and will be happy to go through your options.
If you’d like to discuss your pension and how it can deliver an income in retirement, please get in touch.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rate at the time you take benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.