I listened with anger and frustration to a recent feature on Radio Four's “You and Yours” programme. Our profession is seemingly brought into disrepute yet again, by unregulated and unscrupulous individuals, who were cold calling individual pension scheme members to “unlock” their pension funds. One seriously ill man thought he was doing the right thing and responded to a cold call in order to unlock his pension.

There were quite a few things that got my hackles up.   In part, I feared regulated professionals would be tarred with the same brush but also this practice and the disastrous consequences for individuals is, unfortunately, nothing new. The banking crisis of 2008, the slow road to recovery and the difficulty some businesses have in borrowing, has led to the targeting of pension funds as a way to release money, that in turn, can be diverted to organisations seeking working capital.   Now it would seem,  the forthcoming changes in pension legislation  and the fact that not everyone is up to speed with the implications,  are creating new opportunities  for scams and criminal activity.

In 2013 the Pensions Regulator initiated a consumer campaign with a black scorpion, a creature with a sting in its tail, to raise awareness of various pension scams.  Commonly they go something like this...

Members of pension schemes or those with personal pensions are cold called via text or telephone and promised that they can get their pension money early. They are promised that their pensions can be “unlocked” and they will either receive their pension money back or for it to be diverted into something else with better or guaranteed returns such as holiday lets, bio-tech start ups and in the case of this current radio programme, to apparently fund the construction of storage units. It's frighteningly easy to set up a glossy looking website and work out an 8% guarantee on the “back of a cigarette packet”. These alternative investments are not regulated and come with no guarantees or consumer protection.

What these unlocking organisations also fail to mention is their charges and any tax penalties. They will charge you 10-20% commission for their part of the process which will be deducted from the money. Taking pension money before the age of 55 is seen by HMRC as receiving an unauthorised payment so it will not be long before a brown envelope hits the doormat with a demand for 55% of the gross money received ( ie any unlocked money including any commissions deducted) as a tax charge by HMRC as they look to claw back the tax relief throughout the life of the pension.  Even if you are unfortunate enough to lose all your money to these scams you will still be responsible for the tax charge.

Its been eighteen months since the black scorpion campaign was launched yet it was reported in August 2014 in a Money Marketing article that some £495 million of people's pension funds have been lost to pension scams despite the checks and measures put in place by HMRC, The Serious Fraud Squad, The Financial Conduct Authority and The Pensions Regulator. The same article reports that small self administered schemes are now the target of ever sophisticated organisations.

 And as if matters couldn't get any more dramatic, the seriously ill man who has twice survived cancer, has had to chain himself to offices in Speke, near Liverpool,  in order to try and get recompense.

So what's the answer.   Education, education, education.

The government wants us to save more and is placing pensions at the heart of their strategies.   Legislation has been introduced to make Auto Enrolment into workplace pensions compulsory and yet, so many people don't know the basic facts as to how pensions work. 

                                    Here's some basics......


1. Pension schemes registered with HMRC are eligible for tax relief on contributions.  If you are an employer or running a business, pension contributions are a tax deductible expense.  If you are an employee and you make a pension contribution you make a contribution net of basic rate tax relief .  Pension funds grow free of income tax and capital gains tax.
2.  Upon crystallisation of benefits a maximum of 25% of the crystallised funds can be taken as a tax free lump sum.
3.  Taking money out of pension funds before the age of 55 is considered an unauthorised pension payment and subject to a 55% tax charge.
4.  Special provision exists for people with serious illness,  subject to the lifetime allowance and medical assessment the entire pension fund could be released as a serious ill health lump sum commutation with no tax charge.

Please please don't let fraudsters and scamsters benefit from your life time savings through ignorance.  If in doubt contact the Financial Conduct Authority, HMRC or a trusted regulated financial adviser.

Further Resources:

The Pensions Regulator pages explain pensions rules and what to do if you think you are the victim of a scam.

HMRC guidance pages on tax charges

Which article alerting consumers to the dangers of cold call and of pension liberation

Link to the You and Yours feature on BBC i-player

My name is Jill Turner and I work hard to make financial planning engaging.  It might seem strange that an investment professional states, “that I care  more about how my clients are doing than how the markets are doing”, but  let me explain what I mean in this article, which is an expanded version of the latest sixty second presentation to my business referral group.  

My inspiration came from what has affectionately become known as the patchwork quilt, to the left.  Designed for investment professionals, it graphically represents the rise and fall of different asset classes, ( e.g Gold, UK Smaller Companies, Property, Large US companies etc. ) showing the percentage growth or loss in any given calendar year.  If you're struggling to see the small print, it might be handy to download a full page version here and refer to as I go through two, possibly polar extreme examples, of  investment journeys that both start at the beginning of 2005.  At least you will be able to check my calculations.

For our first journey, let's dust off our crystal ball and chase the investment returns. At the beginning of 2005, we invest £1,000 in Japan and benefit from a cracking return of 40.49%. It would be tempting to stay put and hope for a repeat of these gains but along with our crystal ball we have a nephew working in the City who gave us the inside track that markets were getting tricky. So we sell our Japan fund and invest everything into Gold where we remain until the end of 2008. We managed to keep our powder dry, ready to invest on the gun fire and surely enough as equity prices fall we sell our Gold funds and buy into a UK Smaller Company fund.  We stay with this asset class until the end of 2013 and our £1000 has become £8,439 in nine years.

An extraordinary return, an average of 93.7% per annum but remember we were relying on our crystal ball.

But it could have been so different. It's the beginning of 2005 and we open the Sunday papers. There in the money section journalists tells us that Japanese funds are the winners for 2005 and as luck would have it, we get a good return. That's great we file the annual statement and look forward to similar returns next year and the next. As we haven't reviewed our arrangements we don't realise that our Japanese fund has gone down three years in a row.  Okay its not too bad, we grit our teeth and hold out for a gain but after another year of losses we get impatient and sell our fund, keeping everything in cash where inertia takes hold and there we remain until the end of 2013. An overall loss of £118 or 1.3% each year and our £1,000 is now worth £882.

So where does this leave me as an adviser and my clients.  

I can't influence the markets. My role as a financial planner is strategic planning. This includes working out how much volatility you can tolerate, why you are saving or investing, what timescales you have allowed, recommending an asset allocation and calculating the expected returns and therefore how much you need to save to achieve your goals.  Can we second guess the markets or effectively time the markets and know where and when to invest? Maybe with the use of technology, information feeds, inside knowledge, constant monitoring of the markets, talking with politicians about impending changes in legislation and monetary policy. But do we have the time that all of this takes and can my clients in turn afford extra fees for all the extra time this takes? And if its that straightforward to chase returns by switching in and out of different asset classes, why aren't all funds chasing “the next big thing”?

High risk, that's why.  
   
The majority of clients will have their needs satisfied with model portfolios or  multi manager multi asset funds, where funds and  assets are selected to work together, to create the broadest diversification and to harness expertise across the various asset classes as well as different market conditions.  This in turn helps to reduce volatility and give a smoother client journey.   Where my clients have more bespoke needs we work in partnership with a number of discretionary fund managers.  With market monitoring and outsourced investment solutions taken care of I can devote my time and  concentrate on what I do best, caring about how my clients are doing. 

How easy do you find it to make investment decisions ?  Get in touch and tell us about  your investment successes and disasters or use the comment section below for a free copy of "Our Guide to Investing".

Jill Turner 26th June 2014