New pension freedom rules are being introduced in April 2015 which will enable savers to access their pension fund at any time from the age of 55. This means you could withdraw all of your pension savings as cash, subject to tax, and have the freedom to spend or invest anyway you wish.
The change to pension rules brings new responsibilities for the consumer. The government is handing over the responsibility for ensuring that pension money saved lasts a retirement in the hands of the individual. This means the safety net of restrictions, such as having to take most of your retirement savings in the form of an income will be gone. For many this means much greater pension freedom, but for some people it may seem to be an overwhelming task.
Industry experts are concerned that many people retiring this April may feel that they are rich, some for the first time, because their pension money previously locked away and inaccessible will suddenly be available.
There are concerns the 55’s will throw off restraint and go on an unstoppable spending spree, leaving insufficient funds to provide a comfortable income for the next 20, 30 or even 40 years.
There is a lot for upcoming retirees to get to grips with.
Pension scams are already of big concern to pension regulators, and this is expected to increase as retirees have more options for using their pension savings.
It is anticipated that a new wave of sophisticated pension fraudsters will surface, with scams that target the public and are focused on the new pension freedoms.
These criminals are expected to target the over 55’s with promises of high returns in exchange for cash from small pension pots, promising to invest in complex structures which may seem valid and trustworthy, but turn out to be non-existent ventures.
How to make your pension last and avoid scams at retirement
If you are approaching the age of 55 and starting to look at your retirement options, here are my tips:
1. Allow yourself to feel rich, but for all of 30 seconds. Then accept that your pension savings will need to last you for 20, 30 or even 40 years. Begin to work out the pension income you are likely to need by identifying your fixed living costs, and then deciding how much you need on top of paying for the bare essentials. This may limit the amount you want to spend from your pension savings now in order to provide a higher income, or even prompt you to defer taking retirement.
2. Don’t make decisions regarding taking your pension without taking advice.
Simple actions like withdrawing your pension in one lump sum, could have significant implications such as losing a large sum in tax. Similarly, making a large withdrawal and putting it into a cash savings account or trying to invest the money yourself could negatively impact your long term wealth.
3. Factor in the rises and falls of stock market investing. Hopefully, by investing carefully and making sensible withdrawals, your portfolio should continue to provide you with a reliable income. Investing to generate a retirement income will mean you are likely to be exposed to some stock market fluctuations; this means understanding that there is no certainty in your plans. It will be important to find the right product or investment that can meet the income needs that you have identified, but without taking more investment risk that you either need or can tolerate.
4. Build in some wriggle room into your financial plans. Unless you are buying an annuity, which provides a guaranteed income for life, then you are guessing your life expectancy and hoping that your money lasts your lifetime.
5. Be sure to factor in the rising cost of living into your income needs.
6. Be on your guard for scams. A reputable financial adviser will not approach you with an offer out of the blue with a ‘great investment’, nor will they talk to you about products that you ‘can’t afford to miss’. If the deal sounds too good to be true then be on your guard: trust reputable financial advisers and be wary of cold called investment opportunities. You can double check any investment company or individual’s credentials by contacting the Financial Conduct Authority (FCA) at email@example.com.
7. If a pension company or individual is concerned about a possible scam pension request, they can inform various agencies who can investigate the details. Contact the Pensions Advisory Service, Action Fraud, or the FCA if you have concerns or speak to your financial adviser or get in touch with me.
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