The Work and Pensions Committee will today (1 November) hear eight experts on possible reforms to pension freedoms.
With the introduction of the new rules 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.
The committee launched an inquiry last month to investigate whether the pension freedom reforms are working.
Here are five topics that will be addressed in today’s hearing.
1) Pension scams
Baroness Ros Altmann, former pensions minister, has been one of the most vocals defenders of the introduction of the cold calling ban, and will be addressing this issue.
The government announced the introduction of this ban back in August, to be legislated when parliamentary time allows.
Baroness Altmann told FTAdviser that she will address the fact that it will not be good enough just to use the Information Commissioner’s Office (ICO) to implement a cold-calling ban.
She said: “This has to be done by regulators – [Financial Conduct Authority] FCA rules should ban the use of data gathered from cold-calling, and any firm that cannot demonstrate it did not get the information via a cold-call should be threatened with losing its licence.”
Sir Steve Webb, director of policy at Royal London and another former pensions minister, will also address this issue.
He said: “We share the general concern at the apparent lack of urgency to implement the proposed ban on cold-calling.
“Whilst this is clearly not a ‘silver bullet’ solution it would close off one tool used widely by scammers and should be implemented as soon as possible.”
2) Pension dashboard
After the announcement that the Department of Work & Pensions (DWP) would take on the responsibility for the pension dashboard, several experts are asking for more details on how this will work in practice.
Peter Vicary-Smith, chief executive of consumer advice group Which?, told FTAdviser that “the government must act now to ensure the huge potential to help consumers engage with pensions is delivered with an effective dashboard in 2019."
He said: "We need to see early government consultation and the requirement for all pension providers to feed into the dashboard with clear and accessible information.
“Without such commitments, this valuable consumer tool could be redundant."
Royal London's Sir Steve also shares this view.
He said: “We appreciate the constraints on legislative time, but a clear signal now from the government would cause schemes and providers to devote resources now to making sure that when the legislative requirement comes in they are ready to comply.”
3 ) Advice and guidance
Baroness Altmann said that she will “express disappointment that so few people are getting guidance and we need to find a way to make the guidance the automatic starting point for people before transferring or cashing-in pensions”.
In her submission to the inquiry, Baroness Altmann called for Pension Wise guidance to be made mandatory.
She said: “The provider would have to offer people a Pension Wise appointment when they [members] call up to ask to transfer or encash their pension, and recommend that they should use the guidance to help them with any decisions they might be making.”
Otto Thoresen, chairman of the National Employment Savings Trust (Nest), will also discuss this topic.
In Nest's submission to the inquiry, the workplace pension provider said that “it should not be assumed that because an individual has accessed advice or guidance that they will necessarily make good decisions because of this engagement."
Nest is calling for the introduction of guided default investment pathways for members, which "should act as a means to supplement the existing retirement market, not to replace it."
Qualifying workplace schemes should be compelled to offer a guided pathway for those who remain disengaged or just want a trusted source to "do it for them," the company said.
4) Annuity market
Baroness Altmann will also address the annuity market, she believes “is still not working well enough”.
She said: “I understand that some pension firms are not making customers aware of their guaranteed annuity option properly.
“They are sending information about a standard annuity in the wake-up pack, while making it less clear that they actually could have a higher guaranteed rate."
According to a report published yesterday by Moneyfacts, this market is weakened. In the third quarter of 2017, the difference in the income payable between the most competitive and least competitive open market annuity narrowed markedly, from 13.9 per cent to just 8 per cent.
5) Taxation
Royal London's Sir Steve will also bring attention to the way HM Revenue & Customs (HMRC) is taxing pension lump sum withdrawals.
He said: “HMRC’s current practice is to tax such withdrawals on an ‘emergency’ tax basis, which results in people being substantially over-taxed and having to claim a tax refund using one of three different forms."
According to Royal London, in the first three months of this financial year HMRC paid out more than 10,000 refunds, worth more than £26m in total.
Sir Steve is advocating that HMRC should only take the standard rate tax and collect any extra tax due through the usual end-year tax return process.
maria.espadinha@ft.com
