Fraudulent investment schemes targeted at the over-55s are probably the biggest risks posed by the pensions flexibility and choice changes, according to investment specialists Hargreaves Lansdown (HL).
The firm says pension fraudsters who have already liberated hundreds of millions of pounds worth of pension fund money in recent years by using scam pension schemes will find it even easier to target the over 55s with seductive offers of “too good to be true”, guaranteed investment schemes.
But in publishing its top ten risks for investors, HL claims the Government has done little to address the problem.
In its list, unexpected tax bills and transfers out of final salary schemes were listed second and third in the top ten.
HL head of pensions research Tom McPhail said: “The pension freedoms are hugely popular but they are not risk free.
“The first wave of investors taking advantage of the new rules in April this year are particularly vulnerable to unwanted or unexpected problems with their pensions.
“Therefore it is vital that everything possible is done to make sure they are well looked after because once cash has been withdrawn from a pension and the tax paid (deducted by the pension provider before the money is handed to the investor), it will be too late.”
Other potential pitfalls could include an investor’s pension pot running out too soon because they have under-estimated their life expectancy or withdrawing capital during market downturns.
Also if investment returns fail to meet expectations, investors overestimating state benefits, pension guidance services are unable to cope with demand and where investors buy poor value annuities.
In addition, pension schemes that aren’t ready in time, investors not drawing their money quickly enough or withdrawing money unnecessarily.