6th May 2020
The Pensions Regulator has issued a range of guidance since Covid-19 emerged to help employers and Trustees deal with the increasing risks pension scheme members face; particularly the risk of scams.
Pension scams can have a devastating impact on savings. The most recent figures show that victims of pension fraud lost on average £82,000 which for many savers, takes decades to achieve. Victims of pension scams can be left approaching retirement with a significantly reduced income and in some cases, victims can lose their entire life savings.
Trustees are the first line of defence in protecting retirement funds and have a key role in ensuring members make informed choices.
In light of these announcements, Jonathan Watts-Lay, Director at WEALTH at work, comments on how employers and Trustees can support their employees and scheme members in these challenging times:
“Due to the global market volatility and the fact that household incomes are coming under extreme pressure, scheme members are more likely to be tempted to access their pension by either accessing a defined contribution pension early or transfer out of a defined benefit pension in order to do so.
Significant risks exist if scheme members rush to make knee jerk decisions without seeking appropriate guidance and regulated advice. Rushing to take cash will also make scheme members incredibly vulnerable to scams, which could see them lose tens of thousands from their pension.
Employers and Trustees have a duty of care to ensure that pension scheme members have an understanding and awareness of the implications of early withdrawal and the potential risks involved. Many will be unaware of the implications in terms of the Money Purchase Annual Allowance and tax charges. Whilst some may be in need of extra cash, there are other options available such as reducing costs through the government announced mortgage holidays and debt repayment deferrals, through to looking at alternative savings which may be more appropriate to access. Arming them with the facts on what they can and cannot do with their pension will also help them defend themselves against scams. The Financial Conduct Authority and The Pensions Regulator have issued comprehensive guidance on what employers and Trustees should be doing and are expected to step up to the task.
Financial education and guidance support is key whether using free services such as Pension Wise or more tailored services from workplace providers.
Schemes and employers should ensure that reputable firms are sourced after a thorough due diligence process which includes checking their regulatory record, speaking to other schemes or employers using their services and looking at member feedback. This would make the whole process far more robust and ensure appropriate member outcomes.”