How to keep your money safe

The threat of pension scams is on the rise due to the recent changes. The lure of huge or guaranteed returns can turn the head of even cautious people, but falling prey to a bad opportunity can wipe out a big chunk of your pension fund – perhaps all of it. To avoid a pension scam, it’s key to look for the warning signs.

 Are you old enough?

One of the most important things to remember is that you are only able to remove money from your pension fund from the age of 55, and the new pension rules have not changed this. Removing money earlier is known as pension liberation, and you could lose a lot of your money in taxes and fees.

What are you planning with the money?

Although it’s now possible to remove as much money from your pension as you want, it may not be the best decision. In particular, if you are hoping to get a better return on your investments then you need to think carefully and talk to an adviser, as pensions can be hard to beat, which we explain in our blog "What we found, Part 2: Pensions are misunderstood but hard to beat". Only 25% of your pension fund is tax free, and anything above that is taxed at your marginal rate. If you plan to withdraw a large amount of money you could pay a considerable amount of tax, and a subsequent investment will need to perform excellently to recoup that. Money inside a pension is also tax free, whereas income generated from other investments may have tax applied to it.

Is it regulated?

If you are approached by a firm offering an investment opportunity, you should check to see if they are regulated by the FCA. With regulated advice, you have access to the Financial Ombudsman Service and your money is protected by the Financial Services Compensation Scheme if things go wrong. With unregulated firms, however, there is a lot of risk and you may not be able to recoup any of your money if the investment does not go as planned.

Is there diversification?

A standard rule of financial advice is that having money in a single place puts it at higher risk, while spreading it out into different investments is safer because it isn’t so vulnerable. Many scams or risky investments ask you to put your money into a single place, often promising unrealistic returns.

Are you being rushed?

A frequent tactic by pension fraudsters is encouraging you to sign up immediately because the opportunity is only available for a limited time. Some are so pushy that a courier turns up and asks for a signature on the spot. Never be rushed into a decision – your future financial situation depends on it, so find out the details and take your time to learn the facts.

Do you know the company?

Text messages and cold calls are particularly popular methods used by scammers, so be very wary if you are contacted this way. If you know the name of the company, you can check the FCA register to see if they are regulated.

If in doubt, either walk away or seek regulated advice. You can also check the FCA’s ScamSmart website, which can tell you if a company or investment is on its warning list.

Have you been targeted by a pension scam? Let us know with a comment below.

Call 0800 304 7288 for a friendly chat about your pension

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section:

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