A trio of Labour lords have launched a stinging attack on drawdown charges, branding them as ‘ridiculously high’ and warning they could create a scandal that will ‘make PPI look like a children’s tea party’.
Baroness Drake, who is on the board of the Pensions Advisory Service, and who was a member of Lord Turner’s pension commission, told a debate in the House of Lords yesterday that drawdown charges were ‘ridiculously high’.
DWP minister Lord Freud defended the government’s ‘wait-and-see’ position on the issue, saying that a charge cap on decumulation could be introduced if necessary, but time would be given to see how big a problem actually emerges.
Baroness Drake said: “Some providers of income draw-down will charge between £150 and £200 each time a customer takes out cash, so a person with a £30,000 pot who takes out £5,000 in cash over six years will lose between £900 and £1,200. Will the Minister challenge the industry on why the charge to access cash now is so ridiculously high?
Lord Hughes of Woodside said: “When this policy was first made, to a great fanfare of trumpets, the Government were warned of the difficulties that would arise unless they took control of the matter. What the Minister is really saying is that no planning was done whatever and no thought whatever was given to how this matter would develop. Is he aware that, the way things are going, this will make the PPI scandal look like a children’s tea party?
Lord McFall of Alcluith said: My Lords, complexity and inertia still define the characteristics of this industry. The Government said that they would not hesitate to intervene if there is a rip-off, but rip-offs take place daily at the moment. In the absence of the Government’s will to go one step further, is there not a compelling case to ensure that the cash element is disclosed in these documents, so that people can see exactly what they are being charged on a monthly or yearly basis?
Lord Freud: This market is two months old and we are watching very closely to see how the charges develop. There is a range of different charges; some providers charge for drawing down and others do not, but we will be watching it very closely. The Prime Minister has also promised that we will keep a close eye on this. We already have transparency in the accumulation phase. If that is necessary in the decumulation phase, we will not hesitate to introduce it.