Citizens “are having their cake and eating it” when it comes to pension freedoms, argued the chairman of the Work and Pensions select committee.
In a letter to FTAdviser sister’s newspaper Financial Times, Labour MP Frank Field argued “that the government needs to reform the pension freedoms regime”.
He said: “As well as being offered tax breaks to build up their pension capital, people are also able to fall back on welfare once they have spent their savings.
“Clearly the government will need to revisit this aspect of what remains overall an attractive policy, to prevent the possibility of taxpayers coming to think they are getting a raw deal.”
Last month, the Work and Pensions select committee launched an inquiry to investigate whether the pension freedom reforms are working.
With the introduction of pension freedoms in 2015, savers have been seeking to take advantage of the high transfer values of defined benefit (DB) schemes and to move their nest eggs into defined contribution plans, which has pushed MPs to act.
Figures published by Mercer in April showed that as much as £50bn has been pulled from final salary pension schemes in the last two years.
According to figures released by HM Revenue & Customs (HMRC) last week, more than £14bn have been unlocked from defined contribution (DC) pensions since pension freedoms came into effect in 2015.
Mr Field said he has always been in “favour of pension freedoms as an alternative to historically poor annuity deals”.
He said: “The key proviso for which I pushed then and have always done since was a requirement for people before gaining total freedom to have sufficient capital to prevent them falling back on welfare.
“The coalition government opted for total freedom without this proviso and we are now beginning to see the results — people are spending all of their savings.”
According to Henry Tapper, pensions expert and founder of Pension Playpen, it is unlikely that Mr Field would not have foreseen ‘double dipping’ as a consequence of pension freedoms.
“It is an easy moral hazard to understand - it needs only common sense,” Mr Tapper said in a blog post.
However, Mr Tapper argued that Mr Field is taking a sensible position.
He said: “We need to retain pension freedoms while building a framework that makes it easy for ordinary people to retain a wage for life from their pension savings.”
maria.espadinha@ft.com
