Opinion  

Is Frank Field pushing for the end of the welfare state?

Simoney Kyriakou

Simoney Kyriakou

Frank Field MP, chairman of the work and pensions select committee, certainly is an interesting character.

Despite being a Labour MP he has hailed the late Baroness Thatcher as a personal 'hero' of his; he was named in 2008 as one of The Telegraph's 100 most influential right-wing thinkers; and he has always been an advocate for the state providing only a small role in the provision of welfare. 

With this in mind, the recent Pensions Freedom report from the work and pensions committee should not come as much of a surprise, in that the committee has recommended more of an onus on providers to ensure a better decumulation strategy.

The same inertia that has led more than 9 million people to date to remain in a workplace pension should be applied at their retirement date, so they do not just end up with cash in low-interest accounts, but at least are defaulted into an appropriate form of decumulation strategy.

Moreover, the National Employment Savings Trust (Nest) should have its remit extended from an automatic enrolment workplace pension provider to a form of 'automatic decumulation strategy provider'. 

The report summarised: "We recommend every pension provider offering drawdown is required, by April 2019, to offer a default decumulation pathway suitable for their core customer group.

"These would be subject to oversight by existing independent governance committees and subject to the same 0.75 per cent charge cap already in place for accumulation in automatic enrolment.

"People would still be free to choose to invest and spend their own money as they wished. But if they did not make an active choice, they would move into a suitable and regulated default product."

So if you don't make an active choice at retirement, the provider with whom your workplace pension was invested will make that choice for you: a form of pension income by default. 

It sounds sensible: use people's natural behaviour against them. I mean, for them. For the greater good (the greater good). But there are issues with this approach, as Simon Harrington, Pimfa’s senior public policy adviser, has warned.

"We agree with the Committee that a properly functioning pension freedoms market consists of a virtuous circle of better-informed customers ditching providers and demanding cost-effective products.

"However, we believe that the recommendations put in place by the Committee are a retrograde step to achieving that. We are not philosophically opposed to the introduction of default pathways, but we need to be realistic about the fact that their introduction will more than likely see individuals choosing them as a path of least resistance.

"We have two concerns surrounding this; namely that drawdown will be marketed as a default choice in a manner similar to annuities pre-freedoms and that individuals will remain with their provider and not engage on the open market to best assess their options. In our view doing so will increase rather than reduce the potential for long-term consumer detriment."