Pensions  

MPs to probe scam risk of pension freedoms

MPs to probe scam risk of pension freedoms

The Work & Pensions Committee has launched an inquiry into whether the pension freedom reforms are working.

The vast sums being withdrawn from retirement pots by the over-55s since the 2015 pension freedom reforms were introduced has pushed MPs to act.

Latest HM Revenue & Customs statistics showed £1.86bn was withdrawn in the second quarter of 2017 and in total £10.8bn has been withdrawn from pensions since the freedom changes were introduced in April 2015.

According to the committee, the inquiry has a “wide scope” but it will look into concerns about scams as well as concerns about saving decisions and guidance.

The committee has launched a call for evidence asking several questions, including whether people are taking proportionate advice and, if so, whether they are adjusting their behaviour in response to it.

It has also asked whether there is a “persistent” gap in the advice market and, if so, what might fill it.

The committee is also hoping to find out whether the reforms are part of a coherent retirement saving strategy and to what extent they are complementary to other policies.

Frank Field, chairman of the Work & Pensions select committee, said: “Pension freedom and choice liberated savers to choose what they wanted to do with their own money.

“This was welcome, but as with any radical reform it important to monitor its practical effects closely to ensure it is working as envisaged.

“In this case it is vital that adequate support ensures people are equipped to ensure they don’t make decisions they subsequently regret.

“I am particularly concerned that savers are more vulnerable than ever to unscrupulous scam artists. This policy must not become the freedom to liberate people of their savings.” 

Police data showed more than £43m of people’s retirement savings have been lost to fraud since the pension freedom policy was announced.

The committee has also asked for evidence on whether pension dashboards - places savers can see all their retirement pots in one place - will allow people to make more informed decisions and whether guidance services are working.

Recent research by the Financial Conduct Authority found early access of pension pots has become the “new norm” and most who do so take a “path of least resistance”, with low levels of shopping around.

Tom Selby, senior analyst at AJ Bell, said: “The reforms are essentially a massive experiment of human behaviour, so the more robust analysis we have on how they are being used – and any potential policy interventions that could be necessary – the better.

“The evidence we have seen so far suggests the pension freedoms are broadly working well for consumers. 

“While FCA data suggests many savers are taking their entire pension pot as cash, it’s worth noting the vast majority of these are small pots.

“While information on the overall sustainability of withdrawals is scarce, nothing we have seen so far points to retirees being hugely irresponsible and splurging their hard-earned savings on fast cars and luxury holidays.”