The Work and Pensions Committee has launched a new inquiry into the pension freedoms to assess whether they are working and if further reforms are required.
Following the reforms, which were introduced in April 2015, savers can now decide how they want to turn their pension pot into retirement income and can do what they wish with it once they turn 55.
Central to the inquiry will be the issue of fraud and whether or not the relaxed rules are putting savers’ pensions at greater risk from scammers. According to police figures, since the reforms were introduced, £4.3 million of retirement savings has been lost to fraud.
In particular, the group of cross-party MPs is keen to hear people’s experiences of scammers and is inviting those who have been affected to get in touch.
Tom Selby, senior analyst at AJ Bell comments: “The Committee’s decision to launch an inquiry into the freedoms will hopefully put a rocket up officials dilly dallying over the implementation of vital protections from scammers, including a proposed ban on cold-calling. 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.”
The inquiry also seeks to establish whether retirees are making informed and appropriate decisions regarding their savings. Concern is mounting that over 55s are not making the best use of the support available and as a result may make some bad choices. Of those aged 55 or over and planning to retire in the next two years, just 7% have used the government sponsored guidance service Pensions Wise.
It is also concerned that as more people dip into their pensions before they retire, early access has become the ‘new norm’. Plus, where over 55s are turning their pot into income, whether by an annuity or income drawdown, research from the Financial Conduct Authority (FCA) suggests few people are shopping around for the best deal.
Rt Hon MP and chair of the Committee, Frank 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 is 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.”
However, Mr Selby adds that while it is sensible for the Committee to consider the broader impact of pension freedoms, he is not concerned that the system is failing: “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.
“The evidence we have seen so far suggests the pension freedoms are broadly working well for consumers. The drawdown market is hugely competitive, with providers competing hard for new business, driven by the knowledge savers could switch providers at any time if they feel they aren’t getting value for money.
“While FCA data suggests many savers are taking their entire pension pot as cash, it’s worth noting the vast majority of these are small pots. While information on the overall sustainability of withdrawals is scarce, nothing we have seen so far points to retirees being hugely irresponsible and splurging their hard-earned savings on fast cars and luxury holidays.”