Financial experts are predicting a surge of pension savers accessing their nest eggs in April, with the first few months of the freedom changes taking effect potentially seeing a massive £6billion taken from pension funds.
With this comes a real fear that fraud will increase dramatically as many are tempted by ‘too good to be true’ offers of great returns on their investment if they take money from their pension pots and reinvest in unscrupulous schemes.
The Channel 4 program, Dispatches, will tonight have a special on the impending pension changes and how many will use the relaxing of the rules to withdraw large sums of cash from their pensions.
Whilst many will have taken financial advice before making such a big step, there is concern that many will not fully understand the tax implications of withdrawing money from their nest egg, and that such withdrawals make take them into a higher tax bracket.
The program tonight will feature one of the partners at Hymans Robertson, Chris Noon, who will say that around triple the amount of pension savers than the Government had first thought will take advantage of the pension freedom, rather than buy an annuity which offers a guaranteed lifetime income in retirement.
Whilst the Treasury hasn’t backed the claims of Hymans Robertson, it does acknowledge that around a third pension savers would withdraw their full pension pot quicker than an annuity would.
Not all financial experts agree on the amount of money that will be released from defined contribution pension pots, the over-55s organisation, Saga, has predicted that £1.5billion will be released during the first year of the pension reforms, where people will choose to either spend the money, help family out financially or reinvest some of their pension pots.
The Dispatches research found that nearly half of over-55s questioned said they were intending to withdraw some or all of their nest egg.
The program also discovered that around half of the people had also been approached by unregulated companies offering various investments for their pension, leading to concerns that many pensioners will be duped out of their retirement income if they choose to invest in unprotected schemes, which in most cases fail to explain the tax implications of withdrawing your pension and any charges they apply to their schemes – which could leave unlucky pensioners thousands of pounds worse off.
These unregulated firms tend to target people by spam emails, texts, cold calls or tempting websites.
Most of the people who plan to withdraw large amounts from their pension fund are doing so for a specific reason. Home improvements, exotic holidays, helping out relatives and buying large purchases such as a new car tend to be the reasons given for wanting to access their pot early. This has prompted fears that many pensioners will run out of money in later life and have to solely rely on the state pension.