Government may amend pension freedoms legislation to bring in a minimum income level for withdrawals, Mike Morrison has warned.
While the pension freedom and choice legislation has awarded people with more flexibility about how to take their income in retirement, the head of platform technical for provider AJ Bell warned various factors could see the government forced to impose a minimum income allowance.
He said: "This is not something that would come into force immediately and it is not something that I would want to happen, but we need to make sure that the pension freedoms work for everyone."
All it would take is protracted market volatility and people losing too much money in their drawdown accounts, or perhaps people drawing down so much their income levels are no longer sustainable, and the UK could see many people forced back onto the state in retirement.
Should this happen, the government would have to step in to amend the current freedoms brought in by the pension freedom and choice regime, Mr Morrison predicted.
The government could alleviate this by creating a new tax bracket to discourage excessive drawdown, but Mr Morrison believes it would be easier for the government to simply impose a minimum level for cash withdrawals each year to protect those with the smallest pots.
"For example", he said, "Suppose there is a person whose total pension income, including the state pension, would be approximately less than £12,000 a year, then someone like this might be subject to a minimum income rule and would not be able to withdraw cash.
"I do not think this will come into effect any time soon, but I do believe it will have to at some point."
Mr Morrison suggested such a rule could come into effect after 2020 when the UK would have gathered enough real data on how many people have drawn too much down out of their pots and are left with nothing.
He pointed to the OECD's latest pension outlook (2016), which warned that even in countries such as the UK and US, pension scheme design had to be thought through better to prevent more pensioners ending up with far less than they expected.
Mr Morrison added: "We need to develop these pension freedoms so that it becomes not just a snappy phrase for the industry to use but something really good.
"A good pensions freedoms market, to me, is something that has a good balance, between drawdown and annuitisation."
simoney.kyriakou@ft.com
