Rishi Sunak ‘waiting in the wings’ says Dominique Samuels
The Work and Pensions Committee wants a target set of at least 60 percent of people using the Government service Pension Wise or receiving paid advice when accessing their pension pots for the first time. Its members say the Government and regulators must end their timidity and help savers avoid making poor decisions in a bid to bring to an end people ending up as victims of pensions scams.
It comes as the Chancellor is under pressure to act in order to ease the pain of soaring energy costs and ahead of tax hikes.
The Committee recommends the 60 percent goal should be expressed in terms of individuals rather than pension pots with the suggestion it could include an exemption for smaller saving levels.
It also recommends trialling automatic appointments with Pension Wise to help support people in making better decisions.
Pension Wise helps people aged 50 and over to make sense of their options, offering free, impartial guidance.
Chancellor of the Exchequer Rishi Sunak
The National Pensioners Convention and Fuel Poverty Action hold a protest at Downing Street
The MPs on the Committee argue that there should be one appointment when a person accesses their pension for the first time and one at the age of 50, before they can access their pension savings.
Pension freedoms introduced in 2015 give people a wider range of choices over what to do with their pension rather than being required to buy a retirement annuity.
However, the Committee said that although Pension Wise offers a good service, not enough people are using it.
The Financial Conduct Authority (FCA) has told a Committee inquiry that consumers describe pensions as a “minefield” with even those who felt financially confident in other aspects of their lives struggling to understand how they work.
Labour Party MP Stephen Timms
MPs are calling on the Government to help people dipping into their pension pots for the first time.
Stephen Timms MP, chair of the Work and Pensions Committee, said the pensions landscape is in a constant state of change.
He said: “It’s little wonder therefore that – as the Government’s own financial regulator recognises – people struggle to navigate the pensions minefield.
“When the 2015 reforms were introduced, the Government guaranteed that savers would be given the tools they needed to take advantage of the new range of options and make well-informed decisions. Seven years on, guidance remains the missing piece of the pension freedoms jigsaw.
“Nudging savers will not be enough. The Government and regulators can no longer just sit on their hands as decision-making becomes ever more complicated.
Germany fire: Two dead after ‘explosion’ at service station [REPORT]
Greeks FURY as unvaccinated over 60s fined monthly from today [LATEST]
Russia Warning: Canada preparing for Putin’s invasion of Ukraine [REVEALED]
The best and worst places to retire in.
“They must end their timidity and be much more active in supporting people as they approach retirement. We know that those who use Pension Wise find it useful and often make different choices as a result. Every effort should be made to boost its use.”
He added that without intervention to dramatically drive up the numbers receiving guidance, savers will make poor decisions and in far too many cases become victims of scams.
The Labour MP for East Ham warned that the pension freedoms, far from living up to their name, will instead trap people in an increasingly confusing web of complexity.
A Committee report suggests the FCA should seek to increase the number of people choosing a mix of retirement products which could be of benefit.
The Committee wants 60 percent of individuals to receive advice on their pensions
This might include someone who may benefit from withdrawing a lump sum when they first dip into their pension pot and at a later stage in life choosing an annuity, which guarantees an income.
The report adds that the pensions advice allowance, which permits £500 to be withdrawn from a pension up to three times in different tax years for advice, should also be overhauled with its annual limit removed and the Money and Pensions Service as well as advisers encouraged to signpost its use.
Phil Brown, director of policy at B&CE which provides the People’s Pension, commenting on the report, said many older pension savers are sleepwalking into retirement and need more help.
He told the Press Association: “More must be done to help savers understand risks such as longevity and inflation, as well as how investments work.
“Although Pension Wise is a very good service, it isn’t the only solution to this problem and providers need to develop products which will help retirees safely spend their money, while optimising the way they continue to save during retirement.”
Laura Myers, a partner at financial consultancy Lane, Clark & Peacock said: “For many savers the most attractive feature of saving in a pension is the ability to take 25 percent of the pension pot in the form of tax-free cash.
“The problem is that far too little attention is given to what happens to the other 75 percent.
“This can end up in a poor value draw-down product or, worse still, be fully withdrawn and sit in a current account or cash ISA with ultra-low returns.”
The Department for Work and Pensions has been contacted.