Two and a half years after the introduction of pension freedoms in April 2015, the Work & Pensions Committee (WPC) has launched an enquiry into how successful they have been and whether further policy modifications are needed to keep consumers safe.
The work will be wide-ranging, looking at what people are doing with their retirement savings, how they make their choices, the level and quality of guidance and information available to them, and how far their requirements are being met by new pension products.
It will address particular concerns about the increase in scams since the pension freedoms were introduced. Police data shows retirees have been duped out of more than £43 million of retirement savings since the freedoms were introduced.
In August, when that figure of £43 million was published, pensions minister Guy Opperman announced the introduction of ‘tough new measures for those who scam’, including a ban on cold calls, text messages and emails related to pensions, and tighter rules governing final salary pension transfers.
But no timetable has been set for the implementation of these measures, raising fears that the whole issue is not being prioritised by the government.
Meanwhile, concerns have been voiced that, scams aside, people are taking decisions they may subsequently regret because they are not making use of the available support. Of people aged 55 and over and planning to retire in the next two years, just 7 per cent used the free and impartial Pension Wise guidance service, according to the WPC.
A report by the FCA earlier in the summer also raised worries about the poor take-up of advice when people access their pensions, leading to the risk of them running out of money or paying too much tax.
The WPC’s planned enquiry is widely welcomed by industry experts, who view the freedoms as a positive development for consumers but are concerned that not everyone is actually benefiting as they should, and that the government is not being proactive enough.
‘The Select Committee is increasingly tackling the hard questions in pensions and it is imperative that the government, regulators and the industry reflect hard on the impact of the 2015 reforms to ensure they deliver for savers,’ says Darren Philp, director of policy at The People’s Pension.
Tom Selby, senior analyst at AJ Bell, also sees the enquiry as an important push for real action in the face of ‘officials dilly-dallying over the implementation of vital protections from scammers, including a proposed ban on cold-calling.’
He adds: ‘The government’s commitment to introduce the reforms at the earliest opportunity simply isn’t good enough – hopefully the Committee can hold policymakers’ feet to the fire and accelerate the introduction of these measures.’
More broadly, he sees the review as an important step in ensuring the pension freedoms work smoothly, given that they were such a huge step in the dark when they were introduced.
‘The reforms are essentially a massive experiment of human behaviour, so the more robust analysis we have on how they are being used – and any potential policy interventions that could be necessary – the better,’ he adds.
Steve Webb, director of policy at Royal London agrees that while the pension freedoms have been ‘overwhelmingly positive’ for consumers, it’s important to assess how they could be improved. ‘Not enough people are taking advice or guidance about one of the most important financial decisions they will ever make,’ he comments.
He highlights current problems including the need to get people to shop around for the best retirement income deal, and to stop them taking money out of a pension account and then simply parking it in a low-paying cash savings account.
‘The opportunity to get things right under pension freedoms is considerable, but savers need more help and advice to make sure that they can take full advantage of those freedoms,’ he warns.
However, Jon Greer, head of retirement policy at Old Mutual Wealth, points out that continual changes to policy can leave consumers feeling increasingly mistrustful of the whole pension system.
‘Trust in pensions is already a major issue as recent figures from the Office of National Statistics have revealed that almost half of people (49 per cent) consider property the best means of making money for retirement. Only 20 per cent of respondents said workplace pensions were the best way to maximise returns,’ he comments.
‘Constantly changing policies is hurting the savings culture and if people think more changes are coming down the pipeline, they are likely to lose even more faith… Ideally we need a cross-party group to convene to set out a long-term vision for pension policy, rather than have the party in government introduce reforms which are later queried by other MPs.’
The enquiry is inviting evidence and recommendations for improvement until 23 October.
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