Significant monitoring is needed to ensure that the inevitable challenges that follow the April at-retirement reforms are dealt with by the next government, according to shadow pensions minister Gregg McClymont, who committed Labour to doing so if elected in May.
During a debate between Mr McClymont and pensions minister Steve Webb hosted by the Society of Pension Professionals, the Labour MP for Cumbernauld, Kilsyth and Kirkintilloch East reiterated that his party would monitor but not unwind the pension freedoms announced at last year’s Budget.
Mr McClymont said the governing parties would “lose face” if they have to intervene post-April, as they don’t want to be now seen as “too paternalistic”, adding Labour are more concerned about people potentially squandering their pension pots or being the victim of scams.
On the paternalism point, Mr Webb responded that while that was certainly the driver behind auto-enrolment, such a stance should end at retirement.
Mr McClymont also stated that the next government must pay close attention to income drawdown as it rises in popularity, while annuities potentially lose out. He also appears to be a fan of collective defined contribution products due to the sharing of longevity risks.
“Government must respond creatively to the problems that arise, while providers must offer products that build up a pot and turn it into a retirement income, not just long-term savings products; longevity risk must be shared.”
He also argued that the Pension Wise roll-out has been rushed, giving the example of a friend in his constituency who is set to become a guidance giver, but has not yet begun formal training for the role.
The Pensions Advisory Service, which will run the telephony channel of the service, has said all guidance staff will complete a CII level three certificate before taking up front line responsibilities.
“People will expect a more substantial package from the guidance,” Mr McClymont noted, adding that many in the country will have no experience of going to get financial advice, so it will not be the obvious next step.
Mr Webb responded that there was no perfect way of implementing the changes that the chancellor laid out last March, pointing out that doing things over two years would have just meant a doubling in the number of people building up a desire to take advantage of the freedoms.
“The vast bulk of people will go via the web or phone, which are already up and running,” he suggested, adding that the Pension Wise website received a huge surge in traffic following the airing of the first television advert for the service on Sunday evening.
Setting out his stall for the next government, Mr Webb reiterated earlier points about the need for proper structural tax reform rather than “tweaking”.
He again suggested a 33 per cent flat rate and reduction in the annual allowance, which could be cost neutral for the government via salary sacrifice, and if done correctly it could wipe out the need for a lifetime allowance which was deemed “a tax on promotion”.