MPs have launched an inquiry into whether scams and poor decision-making by retirees mean pension freedoms are failing in their objectives.
The Work & Pensions Committee has issued a call for evidence on a range of issues, covering scams, overpayment of tax, low take up of advice and guidance, and the ability of digital solutions to fill the advice and guidance gap.
Launching the inquiry, committee head Frank Field MP pointed to Police data showing that £43m of pension savings have already been stolen, and that only 7 per cent of pensioners drawing down savings used the Pension Wise service
The call for evidence asks for views on or all of the following by Monday 23 October, including recommendations for improvements in each case:
- What are people doing with their pension pots and are those decisions consistent with their objectives? Is there adequate monitoring of the decisions being made?
- Are people taking proportionate advice and guidance and if not, why not? Are people adjusting behaviour in response to advice and guidance?
- To what extent will pensions dashboards enable consumers to make more informed decisions about their retirement savings? What are the remaining obstacles to their creation and success and how should those obstacles be overcome?
- Is Pension Wise working? If not, how should it be reformed? Are there any implications for the proposed creation of a new single public financial guidance body?
- Are there persistent gaps in the advice and guidance market and what might fill them? Is automated advice and guidance filling gaps as expected?
- Is there evidence of product market competition resulting in cheaper, clearer or a wider products for consumers? Are people switching from their pension provider in accessing their pots? Is an adequate annuity market being sustained?
- Are the Government and Financial Conduct Authority taking adequate steps to prevent scamming and mis-selling?
- Are the freedom and choice reforms part of a coherent retirement saving strategy? To what extent is it complimentary to or undermined by other policies?
Field says: “Pension freedom and choice liberated savers to choose what they wanted to do with their own money. This was welcome, but as with any radical reform it important to monitor its practical effects closely to ensure it is working as envisaged. In this case it is vital that adequate support ensures people are equipped to ensure they don’t make decisions they subsequently regret.
“I am particularly concerned that savers are more vulnerable than ever to unscrupulous scam artists. This policy must not become the freedom to liberate people of their savings.”
The People’s Pension director of policy Darren Philp says: “The pension freedoms have revolutionised the savings industry, but these freedoms are also fraught with danger. Whilst these freedoms have engaged some savers with a sense of ownership over their pensions, our research has shown that even when engaged many are still confused about where they can get the help they need to make the right decision.
Hymans Robertson partner Jon Hatchett says: “When F&C was announced the writing was clearly on the wall for what we are experiencing now. While the removal of restrictions on how people can access their savings has generally been welcomed, in reality people tend to withdraw their pension savings at a much faster rate than they would have done if they’d remained in a DB pension or were forced to buy an annuity. It has neither increased saving nor ‘strengthened the incentive to save’. At best it has weakened one disincentive to save. And we’re likely to see ever increasing numbers of pensioners in poverty as a consequence.
“The recent FCA Retirement Outcomes Interim Review showed that accessing pension pots early is the norm. A huge worry is that 52 per cent of those who cash in their pension simply invest it into another savings or investment vehicle, missing out on more tax-efficient savings options. This behaviour is totally irrational and highlights the lack of trust and ownership that people feel towards pension saving. Worse still the FCA review highlighted that 57 per cent of consumers with a Guaranteed Annuity Rate gave it up for cash.
“Unless action is taken now, there’s worse to come, particularly over the next decade or two. It is vital that savers get the right advice if they are to avoid poor financial outcomes when they retire. It was of enormous concern to see the FCA reporting that 30 per cent of consumers are accessing their funds without advice. One option might be to make a consultation with Pensions Wise compulsory before an individual is permitted access to their pension fund. But more importantly we need better guidance and advice all through a person’s working life, not just at the point of retirement.
“The freedom and choice reforms were not part of a coherent retirement savings strategy. They were a political manoeuvre by Osborne to bring forward tax receipts and score points by freeing people from unpopular annuities. Neither is it coherent with personal taxation policy.
“To build a coherent savings strategy we desperately need to de-politicise the policy making process for long-term savings. The decisions that we have to make as a nation are far from easy, and there is a serious question mark over whether there can ever be political will to take a truly long-term view – largely because many decisions would be politically unpopular.”
Pensions and Lifetime Savings Association director of external affairs Graham Vidler says: “The freedom for people to spend their pension pots is a good thing. However, the choices are now much harder for consumers. The vast majority – 84 per cent of retirees – tell us they want an income from their pension savings but there is no simple route for them to achieve this.
“Alongside the FCA’s retirement outcomes review, we see today’s announcement of a Work and Pensions Committee inquiry as critical to making the market work in the interests of consumers.”