The industry must help people understand the consequences of blowing a pension pot so people realise they cannot fall back on the state.
Andrew Tully, pensions technical director at MGM Advantage, warned that the department for work and pensions has been getting tougher on pensions in the light of the incoming flexibilities.
Mr Tully said: “It seems clear to me that people need to pause before raiding their pensions next month, and ensure they fully understand what the potential long-term consequences of doing so are.”
His comments came as the DWP published a factsheet on how the pension flexibilities would affect benefit entitlement.
The two-page factsheet, Pension Flexibilities and DWP Benefits, lays out the rules on pensions, and how money taken out of pots will be calculated towards a person’s income-related benefits.
This includes the lump-sum option, uncrystallised or flexible drawdown and buying an annuity.
If a person spends, transfers or gives away takings from a pension pot, the DWP says it will consider whether or not it has been a deliberate ploy on his part to secure or increase benefit entitlement.
In the factsheet, the DWP says: “If it is decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.”
• For employment and Support Allowance (contributions-based), half pension income over £85 a week will be taken into account.
• For Jobseeker’s Allowance (contributions-based), all of your pension income over £50 a week will be taken into account.
If someone does not take a pension, it will not be taken into account when the entitlement to contributory benefits is worked out.
It emphasises that the responsibility rests on people to inform the DWP and local authority where appropriate if money is taken from a pension pot.
Mr Tully said the DWP could not have been any clearer on how it would look at cases where people had either deliberately or unwittingly spent their pots while intending to fall back on state benefits.
“We have a duty as an industry to make it very clear what the consequences of this are,” he said. “But all of the responsibility rests with the individual to tell the DWP and the local authority when they take money from a pension.”
Carl Lamb, managing director of Norfolk-based Almary Green Investments, said: “This needs to be shouted from the roof tops and the message really needs to be driven home before April 6 as people need to understand their responsibilities and the consequences of their actions, if they do blow their pot. It is all about education – the government and industry needs to educate people and in some ways save people from themselves.”