Former pensions minister Sir Steve Webb has defended his landmark pension reforms in a week when the Financial Conduct Authority has sought to address some of the issues they have raised.
The director of policy at Royal London was speaking at the launch of a report by the International Longevity Centre which showed people who took advice were £40,000 better off.
When asked by FTAdviser whether increasing access to advice was important for ironing out the issues raised by the reforms, Sir Steve said the reforms were already working.
He said: “Some of the reporting of the FCA’s report was wildly inaccurate. You would think pension freedoms had gone to hell in a handcart.
“Pension freedoms have really worked for people who have had people help them and in the FCA report is shows that.
“What can you do with an £8,000 pension pot? What’s the alternative?
“The biggest worry has not been people who are unadvised, it has been reckless conservatism.
“In a world of annuitisation, get that wrong and you are stuck until your death.
“If people are going into drawdown, that’s a fixable problem but an awful lot of people buying a lousy annuity isn’t.”
As part of its retirement outcomes review, the regulator found that almost three quarters – or 72 per cent – of pots that have been accessed are by consumers under 65.
The most popular option has been to fully withdraw the pot, with 53 per cent of pots fully withdrawn between October 2015 and September 2016.
But the fully withdrawn pots are mostly small, with 90 per cent below £30,000 – in fact 60 per cent were under £10,000.
One of the issues the FCA found was that people who are withdrawing their money are not spending it – 52 per cent had taken their money and put it into another savings vehicle such as a cash Isa.
Sir Steve said this was a result of the government raising the cash Isa limit which encouraged people to use it.
He said: “I think the government has been irresponsible in raising the cash Isa limit to £20,000.
“Now it is saying ‘fill your boots’ and that’s what people are going, that’s what the FCA found.”
In recent years the limit for Isas has increased from £7,200 in 2010 to £20,000 in 2017/18.
Between 2016/17 and 2017/18 alone the limit increased from £15,240 to £20,000.