Are you one of those most at risk from new pension rules?

Those aged between 45 and 55 are at particular risk - what can you do?

Updated: 
Concerned therapist comforting female patient in the office

If you're in the last few years before retirement, then you face new and alarming risks. There are pension scammers lying in wait, the risk you'll end up losing benefits and paying more tax, and even the risk you'll overspend and have nothing to cover the cost of care. You'd be forgiven for thinking that being first to retire with new pension freedoms is about as risky as it gets - but you'd be wrong. Things are far more dangerous for a completely different group of people.

According to Profile Financial, the riskiest group to be in is aged between 45 and 55. The idea is that those people who are retiring right now are still reasonably likely to be doing so with at least some generous DB pensions in the mix. They have also benefited from runaway house prices, and can cash in on the value of their home in order to set themselves up for a comfortable retirement.

At the other end of the age spectrum are those who were automatically enrolled into a workplace pension near the start of their career, and while current minimum payments may be low, they are set to grow - and in any case, plenty of employees and employers are paying more than the minimum already. They won't have the guaranteed pensions of many current retirees, but they stand a reasonable chance of building up a suitable pension pot.

Those in the middle, and specifically those aged 45-55 have fallen between the two. Many of them have no defined benefit pension at all. If they are lucky they will have a defined contribution pension - but they may not even have this.

Those who do have a DC pension are likely to have been blindly paying in over the years, and the vast majority of them will have let the cash fall into the default fund chosen by their employer to mop up everyone who failed to make a decision.

They won't have checked what they are paying in charges, they won't have any idea what they have in their pension, and they don't know what that pension will eventually buy them in retirement.

When they get to retirement, they may make assumptions about the kind of lifestyle their pensions income should be able to offer, and the new rules allow them to use these faulty assumptions to make terrible decision.

As a result, they are heading for disaster, and many people run a serious risk of running out of money well before the end of their retirement.
What can you do?

Simon Vella, chief marketing officer at pension comparison firm Profile Financial, told the Daily Mirror that everyone in this position needs to check what they are invested in - and whether it matches their attitude to risk. If you're unsure what kind of risk you are taking, it's well worth considering talking to a financial adviser about what they would recommend. If your pension savings aren't big enough to justify spending money on advice, you can talk to someone at Pensions Wise, and there are plenty of pension investment guides around online that will talk you through the basics.

You also need to consider the annual fees and whether they are competitive. Vella says many older schemes will have charges as high as 1%, compared to a typical current scheme which usually charges under 0.5%. Over the decades, you could be paying thousands of pounds over the odds for an out-of-date pension.

Finally you need to examine whether you can switch to a better pension, or at least a better investment within your current plan. It may even be worth bringing all your pension pots together under one provider, which will help you keep track of everything you have saved - and be certain nothing goes astray.

It's also essential to put your current pension plans through a calculator - inputting details of when you plan to retire, how much you intend to contribute each month, and how much money you need to live on in retirement. That way you can see whether you are on track, or whether you need to seriously consider one or more aspects of your pension saving.

But what do you think? Are you on track? Let us know in the comments.

Dream retirement destinations

Dream retirement destinations


Understanding Retirement Risks