Experts in the pension industry have warned that the changes to pension freedoms on April 6th is likely to result in an increase in fraudulent activity.
The upcoming alterations are going to make it much easier for pensioners to access their pension savings. The rules at present mean that criminals have found they have to set up schemes first before they can persuade victims to transfer their savings into it- this makes it relatively hard to commit fraud.
The changes will allow any pensioner over 55 years old to remove their pension savings and transfer it to whatever account they like. Tom McPhail from Hargreaves Lansdown stated: ìItís open season for the fraudsters. They can target the over 55ís, and some unwary investors are going to get drawn into these schemes.î
The Work and Pensions Committee have warned that millions of pensioners need to be wary of cold-calling from potential criminals. There is also the possibility of pensioners succumbing to disproportionately large charges and costs in pension schemes. It is necessary to offer them protection as well as sound advice as to how to not fall victim to such a scheme and also to invest their savings in the most effective way possible.
Moreover, they have advised that pensioners should not be allowed to access this money until the age of 60 due to fears that those withdrawing it earlier will not have enough to last them all the way through their retirement.
The Committee released a statement arguing that allowing people to spend their pension from 55 years olds would ìcreate unrealistic expectations about the age at which people will be able to afford to stopî and that people should only get access ìfive years before the state pension age.î This would mean women would have to wait until 57 years old and men would have to wait until they get to 60. They did state that those with a short life expectancy would be considered exceptions to the rule.
Dame Anne Begg who is the chairman of the committee, also drew attention to the fact that if pensioners accessed their money before 60 they would miss out on the numerous tax breaks offered by the Government. She stated: ì Our view is that, given the significant tax relief provided to pensions, increased longevity, and the importance of ensuring people do not underestimate the income needed in retirement, the minimum age at which people can access their pension saving, except on ill health grounds, should rise to five years below the state pension age.î
She went on to argue: ìSavers need to be properly protected from being ripped off in frauds or scams, or suffering financial loss from making the wrong decision about how to use their pension potsÖWe recommend that the new independent pension commission coordinate its work with that of the expert panel looking at state pension age, so that decisions about further changes to state and private pension arrangements are coherent and complementary.î