Most of us work very hard to build up our pensions, sure there are times when we get frustrated, it’s only naturally and everyone has these feelings from time to time, but most of us soldier on, perhaps making a few changes along the way, and reaping the rewards when we get to retirement.
However, a new and frankly unwelcome phenomenon is emerging; the unregulated pension ‘adviser’.
To be honest we should probably not use the term ‘adviser’, salesman would be better, or perhaps something even less polite!
These unregulated salespeople pounce when people are at their most vulnerable, perhaps when there has been some bad press about pensions, or the stock market has temporarily fallen, or if you simply air your frustrations. They promise you a land of ‘milk and honey’ where all will be well and your pension will suddenly start producing double digit returns year after year. They may even offer you access to your pension before the age of 55, or some commission back, it will all sound too good to be true, and there is a reason for that, it probably is.
To help you avoid these salespeople, we’ve listed three pension scams you really should avoid at all costs.
1. People who recommend you transfer out of a Final Salary pension
Final salary pensions are the gold standard of all pensions, they offer guaranteed benefits, which are index linked each year and provide an income in retirement linked to your salary.
They can rarely if ever be beaten, if a financial adviser, whether regulated or not, tells you to transfer your Final Salary pension to an alternative scheme, decline politely and walk away, they are highly unlikely to be acting in your best interest.
2. Unregulated investments
All of us moan about the stock market from time to time, but that doesn’t mean we should leap into making investments into unregulated products, which will be very high risk and are as likely to lose a significant amount of value as they are to make anything. As a rule of thumb, unless you are a very experienced investor and can afford to lose everything you put in, avoid using any unregulated investment.
3. Pension liberation
Pension liberation is a term used to describe accessing your pension before you are 55.
The rules are very clear, anyone who accesses their pension before the age of 55 will be hit with a tax charge of between 55% and 70% of the amount they take out. The glossy brochures and slick sales patter probably won’t cover this.
A pension is to provide you with an income in retirement, not to help fund a nice holiday beforehand, or to pay for some home improvements, or repay your credit card.
Again, if anyone suggests you access your pension before you are 55, walk away, it’s that simple.
Regulated and independent advice
There is no substitute for good quality independent financial advice. Sure, you will pay for their time, but you wouldn’t hesitate to pay your accountant or solicitor, speaking to a financial adviser is no difference.
If you are unhappy or frustrated with your pension seek out an Independent Financial Adviser, preferably through a recommendation, and let them review your pensions. They are regulated by the Financial Services Authority and have to adhere to the relevant rules and regulations, not something which bothers most unregulated sales people!
Phillip Bray writes for Investment Sense and looks at three pension scams to avoid which break pension and SIPP rules and could leave you significantly worse off in retirement.