Since April 2015, it has been possible to access your whole pension after the age of 55, which has been a very welcome change for many people; however, this can come at a cost.
Scammers are taking advantage of these reforms to target vulnerable people, and scam them out of their pensions. There has been an increase in the number of these scams since the 2015 reforms; if you want to ensure that your full pot is safe until you need it, then exercising caution and knowing the warning signs are vital.
How is your pension targeted?
They will generally contact you first, mainly as a cold-caller. It is usually out of the blue but sometimes unwitting people look online for advice and fall foul. You will generally be contacted in the form of texts, calls or even doorstep visits. Always seek professional advice from an accredited financial advisor if you're unsure. They will also use jargon intended to wow you, so if something seems too good to be true, it usually is.
These crooks do not care about the consequences, and there have even been cases of suicide because of these scams.
What do the scams involve?
The scams will usually involve the promise of being 'loaned' your pension in instalments, but really, this will deprive you of a vast chunk of your pension, maybe even all of it. The scams often involve investments abroad in out of date or dodgy looking companies.
You may receive only 25% of your pension out of this. The rest will be stolen by the scammers and taken in tax by HMRC.
How do I spot a scam?
If you're canny and know the signs, a scam is very easy to spot.
As we previously stated: if it seems too good to be true, it is. These schemes claim to be able to help you access your pension whenever you want, but there is strict legislation in place to prevent this. Scammers will use the term 'loopholes' and 'unlock' when talking about methods to release your pension. In reality, legal loopholes do not exist! Any company claiming to be able to do this is a scam company.
Is there any way of legally liberating my pension?
No, unless you are over the age of 55, or are seriously or terminally ill. You could get in trouble with the HMRC and lose a lot of your pension through tax charges, as well as the fraudulent scheme stealing the pot you've worked so hard to save. HMRC could take 70% of your pension in tax if you become embroiled in a fraudulent scheme, and nobody wants that! If you have any doubts or questions, contact an independent financial adviser. Risking your pension and future just isn't worth it.
If you have invested in a liberation scheme, don't panic yet. You do have 30 days to change your decision and ask your former pension provider to reinstate your pension. This is at their discretion though and may not provide a way out. The best way to avoid all of this trouble is to be vigilant and know the warning signs of a scam. You could be left in the red and lumbered with huge tax bills you just can't afford. It's worth the wait to get your pension at the right time, and know that you can access the money if you become ill before the age of 55.
So ignore the promising sounding claims, and work on making your pension pot grow for when you actually need it. A liberation scheme may sound incredibly tempting, but you are best waiting until the time is right to withdraw your pension. Don't risk losing your entire pot, as you and your family could suffer for it.
For more information on managing your pension, check out our infographic on what you need to know about pensions for your specific age group.
If you don't yet have a pension and you're in your twenties then our article Starting Pensions in Your Twenties will help get you started.