Dispatches research reveals pension truth
In the greatest change to the pensions industry in a generation, from April those over 55 will have complete freedom to take as much as they want from their private pensions plans.
Research for Channel 4 Dispatches suggests £6 billion worth of additional monies will come out of private pension plans in the first four months following the introduction of these new financial rules.
That’s around three times more than the government’s official estimates.
Chris Noon, from actuary firm Hymans Robertson says: “The government have estimated that £2billion worth of additional monies to come out of pension plans next year. We think it’s about £6 billion because of the research that we have done and the market’s done indicate that about three times as more people will take money than a different way to annuity than the government have estimated.”
No one really knows how many will cash in but Channel 4 Dispatches can reveal a new survey in which almost half of those over 55 said they intend to take some or all of their money out.
Nationwide that’s 2 million people who could be taking advantage of the new reforms.
Alan Higham, Retirement Director, Fidelity Worldwide Investments, says: “About 20% of the callers we’ve had are from people who have made very quick plans to spend money on house improvements, buy a new car, go on holiday …and are looking to access their pension funds quickly for that purpose.”
Unregulated companies and risky investments
In total the over 55s will have an estimated £100 billion available to them in pension funds. The government have promised free pension guidance but ultimately it’s up to any armchair investor to find the right professional advice.
In the last nine months there has been a rise in unregulated firms actively pursuing pension holders. Almost half of those with a pension surveyed for Channel 4 Dispatches said they had been approached asking if they wanted to review their pension or release some of it as cash.
Watchdogs and financial planners warn investments offered by some of these companies are unregulated and potentially risky.
To find out what kind of advice these companies are offering, Channel 4 Dispatches posed as someone preparing to cash out their pension and invest elsewhere.
Our reporter was offered various investment opportunities including a parking bay overseas and forests in central America.
Danny Cox, Chartered Financial Planner, Hargreaves Lansdown, says: “I think you’d be absolutely mad to invest your pension money in this type of product.”
Should it go wrong unregulated schemes leave investors unprotected, with no access to compensation or arbitration.”
It’s a problem many financial advisors have already had to deal with.
Greg Heath, Independent Financial Advisor, says: “It’s destroying their pension funds, its destroying their lives. We’ve had people, who have been distraught they’ve been in tears. They’ve been in my office in tears because they’ve effectively lost thousands of pounds and they don’t know how.”
Pension Companies still pushing customers in to annuities
Contrary to the Chancellors promise, some pension companies also continue to box customers in to annuities. In one example an insurer warns a customer how their pension pot could automatically be used to buy an annuity. Other companies are reportedly not allowing customers to access their 25% tax free lump sum and sit on the rest.
Independent Pensions Expert, Ros Altman, says: “Many people don't know that the rules have changed so there are people who are getting the letters from their insurance companies saying – this is your pension fund, you can take a quarter of it tax free cash and this is the annuity we can offer you don't realise that the rules have changed and just sign up and take the annuity. Just like they did before which is itself disappointing”.
Channel 4 Dispatches put this to Pensions Minister Steve Webb MP.