Pension freedoms are proving hugely popular. The right of people aged 55 and older to withdraw their retirement savings and do whatever they wish with them was introduced 100 days ago. New figures published today reveal that around 235,000 people took out more than £1.8bn from their pension pots in the first two months of the new freedoms.
But there have also been fresh warnings that scammers are trying to trick people to use the freedoms to invest in dodgy schemes that allow the crooks to steal their cash.
The Association of British Insurers said that in April and May, savers took out more than £1bn in 65,000 cash withdrawals from pension pots, with the average amount taken £15,500. Meanwhile some £800m was taken out by savers from income drawdown policies, in 170,000 withdrawals. Income drawdown is when someone leaves their pension pot invested but takes an income directly from it.
Some people are still buying an annuity - which gives an income for life - with their retirement savings. However the amount of money being put into annuities has slumped as many pension savers choose to move into income drawdown instead, as it offers more chance to take advantage of the new freedoms.
The ABI reported that pension savers put £630m into annuities and £720m into income drawdown policies in April and May. That shows a dramatic change from 2012, when nearly £1.2bn annuity sales took place a month and £100m a month was put into income drawdown.
Figures from Hargreaves Lansdown show that annuity purchases now make up just seven per cent of all retirement transactions. Tom McPhail, head of pensions research at the firm, said: “The way investors access their retirement savings is changing very rapidly. Many are shopping around and either choosing drawdown or benefiting from an enhanced annuity.”
The ABI’s director for long-term savings policy, Yvonne Braun, said: “The data shows people with smaller pots tend to be cashing them out while those with larger pots tend to be buying a regular income product.”
Meanwhile, if you’ve been offered a free pension review, be wary. Check the credentials of the company or person who has made the offer online to see if they are genuine. If someone offers you a “great”’ opportunity, it’s almost certainly a scam of some kind.
One of the most common since the pension freedoms were announced are dodgy overseas investment opportunities. The smooth-talking salespeople flogging the deals can sound very convincing but pension firm Aegon says eight out of 10 requests for overseas pension transfers it has received are scams to defraud savers out of their pension.
“Fraudsters are not only plausible but are also highly persuasive and it can be all too easy to fall for their polished performance, unless you are on your guard,” warned Kate Smith of Aegon UK. “We’re seeing more and more sophisticated ways of unscrupulous people getting their hands on people’s retirement savings, and it’s not just the over 55s who are being preyed on, younger customers are being targeted too.”
Pension firms have come in for criticism for making it difficult for people to get at their money, but they have a responsibility to ensure that those taking advantage of the new freedoms are not making a terrible decision.
Some people trying to use the freedoms report being faced with unnecessarily high charges for withdrawals or for switching to rival firms. Others have experienced delays in paying out cash or have been asked to pay high sums for financial advice if they want to access their money.
“We are just three months into the biggest overhaul in pensions for a generation which was introduced in only one year, so some issues remain that need to be worked through, in particular around financial advice,” admitted Yvonne Braun.
The ABI has set up a task force to try to find ways to ensure everyone can access their pension in the way they want. The Association’s figures suggest that many are choosing a sensible option, although those will smaller pots, of around £17,000 or so, are mainly those choosing to cash in altogether and do something else with the money rather than keep it for their retirement years.
But it’s exactly those people that fraudsters have been targeting. Experts advise people to be wary and report any suspicions to the Financial Conduct Authority at fca.org.uk and Action Fraud by calling 0300 123 2040 or online at actionfraud.police.uk