Recent data published by the U.K.’s tax, payments, and customs authority, show that a record amount of funds were withdrawn by pension plan participants in the second quarter amid rampant inflation.
“These dramatic figures are the clearest sign yet that people are turning to their pensions to help them with the cost-of-living crisis,” Steve Webb, a partner at Lane Clark & Peacock, said in an analysis. “For those who have run down cash savings, it seems that the pension is their next port of call. It would be worrying if the only way people could cope with the cost-of-living crisis was by ravaging their living standards in retirement.”
According to HM Revenue & Customs, 508,000 people withdrew funds from their pensions during the second quarter, and they did so at least two or three times each on average for a total of more than 1.2 million withdrawals. The total amount taken out over the three-month period was £3.57 billion ($3.95 billion), which is the highest quarterly figure since the Pension Freedoms were introduced in 2015. The pension freedoms legislation allowed savers more access to their defined contribution pension from the age of 55 to use for a wider range of options, such as cash withdrawal, retirement income products or both.
The £3.57 billion is more than £1.2 billion higher than what was withdrawn during the first quarter, when more than 100,000 fewer people took out funds than in the second quarter. LCP also noted that while there are some seasonal variations in withdrawal rates, the second-quarter figures are also 23% higher than the second quarter of last year.
The Financial Conduct Authority, the U.K.’s financial services industry, warns that the recent rise in pension withdrawals can make people more vulnerable to scams.
“The rising cost of living is affecting people at all savings levels, and pension scammers are taking advantage of this,” Mark Steward, the FCA’s executive director of enforcement and market oversight, said in a statement. “Pension scammers are tricking victims with false promises of a better lifestyle in retirement, more money to support a better life in hard times.”
To help protect against scammers, the FCA has launched its most recent ScamSmart campaign, which is intended to provide information and tools to help savers avoid pension scams. The regulator warns that scammers are using “misdirection” tactics to con victims by preying on money concerns and a lack of confidence that their pension savings will last through retirement.
The FCA said that, similar to how a magician uses misdirection to divert attention while performing a trick, new scam tactics are following the same pattern. The regulator said that one of the most commonly used tactics is to offer a free pension review, which could come in the form of a phone call, email, text, or online ad. It also said that most of the companies offering free pension reviews falsely claim they are authorized by the FCA, or falsely claim that they don’t need to be. The reviews are designed to persuade people to move pension funds into risky investments, such as foreign real estate, forestry, storage units, care homes, biofuels, or businesses many people are not familiar with.
“Some of these investments are badly run, while others are outright scams,” said the FCA. “As they’re promoted as long-term pension investments, it could be several years before you realize something is wrong.”
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Tags: FCA, Financial Conduct Authority, HM Revenue & Customs, LCP, Mark Steward, Pension, pension withdrawals, UK