Fears are mounting among MPs and pensions experts that the radical pension reforms which come into force in April are being “misrepresented”, with too much focus on the notion of cashing out and bank account-style freedoms which could undermine the changes or prove unrealistic.
During committee hearings on the new legislation today (18 November), Cathy Jamieson, Labour MP for Kilmarnock and Loudoun, warned that the national press in particular has characterised the reforms around the issue of people “getting their money early”.
Ms Jamieson asked financial secretary to the Treasury David Gauke whether he felt the reforms are being misrepresented in this way and whether there was a risk of this leading to people making poor decisions or not planing adequately.
Mr Gauke appeared to agree as he flagged up comments from Adrian Boulding, strategy director at Legal and General and chairman of Pension Quality Mark, who said during an earlier committee hearing last week that he was against moves to make a pension operate like a bank account.
Responding to questions from Geoffrey Robinson, Labour MP for Coventry North West, on whether insurers would “disappoint” savers or use ‘quasi-banker’ status to ramp up fees, Mr Boulding stated: “We will not be providing a cashpoint card or a hole in the wall.”
He continued: “A pension scheme is not like a bank account. If you want to take money out, even under the new flexibilities, you have a raft of HMRC paperwork to go through, and it will take at least a couple of weeks to get the money out.
“I think consumers have been given completely false expectations by the media, and that will eventually come home to roost.
“The other thing I would say to consumers is that they can only spend the money once. I have a bank account that is topped up every month because I earn some more money in the form of my salary. This pension account can only be spent once by consumers.”
Concerns have also been raised outside of discussions in the Commons.
Speaking at an Institute of Chartered Accountants in England and Wales conference yesterday, the National Association of Pension Funds’ Graham Vidler drew a causal link between discussions of pension bank accounts and savers making poor decisions.
He said: “We must minimise people making the wrong decisions... the media need to stop talking about pension ‘bank accounts’; it’s a wrongheaded concept.”
Elsewhere, following an FTAdviser editorial criticising plans by one provider to launch a pensions credit card, advisers broadly sounded their own concerns.
One commented: “What a nightmare. Trust clients by all means and make them responsible for their decisions. I can see unintended consequences all over the place here... Can you imagine what the public would think if every time they took money from the hole in the wall 20% went to the government.”
The fear is that if consumers cash out their pension, they may spend their savings and fall back on the state. There are also concerns that people are unaware of the amount of tax they will pay if they withdraw their pension at once.