The abrupt announcement from HM Treasury about pension freedoms - introduced three years ago today (6 April) - left the industry with little or no time to prepare for the potential dangers of the new rules as witnessed in the fallout in the years that have followed, several experts have said.
People close to the situation suggested even the Financial Conduct Authority (FCA) was caught off-guard by the government’s new rules, which revolutionised the way savers access their pension pots, and led to an exponential increase in defined benefit (DB) transfers away from so-called 'gold-plated' guaranteed retirement plans into riskier ones.
Three years on the industry sees the seeds of the problems that would follow sown in the fast-face of the change.
Pension freedoms “were announced without prior consultation with the industry and implemented in a year”, Andrew Tully, pensions technical director at Retirement Advantage said.
“Although the pensions industry work very hard to deliver on the promise of pension freedoms for day one, that left very little time to sit back and understand all of the potential dangers.”
According to Mr Tully, “customer behaviour changed very rapidly following the Budget announcement of 2014” when the planned overhaul of pensions was revealed, and the industry is “just playing catch-up with the ever-evolving guidance model, but unfortunately too few people still seek guidance or proper financial advice”.
At the time of the pension freedoms announcement, George Osborne, then chancellor, said that pensioners would have “complete freedom to drawdown as much or as little of their pension pot as they want, anytime they want”.
“No caps. No drawdown limits. Let me be clear: no one will have to buy an annuity,” he said, at the time.
But the changes only applied to defined contribution schemes, meaning since then the number of people transferring out of their DB pension transfers has been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into DC in order to access them.
According to figures from the Office of National Statistics (ONS), funds transferred out of pension schemes almost tripled to a record £34.2bn in 2017.
Rory Percival, former technical specialist at the FCA, who now runs his own consultancy, told FTAdviser that “rumour has it that the pension freedom legislation was hatched in the back of a black cab”.
He said: “The FCA had next to no notice of the announcement. It is an example of the very different policy-making approaches of the government and the FCA.
“The FCA has a very strict policy-making process involving devising draft rules, undertaking a full cost benefit analysis and going through a consultation phase.
"It seems that government can devise new laws without this kind of process - obviously there is the Parliamentary process that hopefully would mitigate against the worst of poor legislation.
“The announcement was about a year before implementation and the FCA was involved with a range of activities in order to ensure the smooth implementation in such a short timescale, given systems changes with providers in particular.”