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MPs announce wide-ranging inquiry into pension freedoms


The House of Commons Work and Pensions Committee has begun a wide-ranging inquiry into the success and effectiveness of the 2015 pension reforms.

The committee is particularly interested in how the way in which people access their pensions has changed since the 'freedom and choice' reforms were introduced, and whether savers are taking proportionate advice or guidance before making financial decisions. It is also seeking views on whether the government and regulators are doing enough to prevent people from being 'scammed' out of their pension savings.

"Pension freedom and choice liberated savers to choose what they wanted to do with their own money," said committee chair Frank Field. "This was welcome, but as with any radical reform it is important to monitor its practical effects closely to ensure it is working as envisaged."

"In this case, it is vital that adequate support ensures people are equipped to ensure they don't make decisions they subsequently regret. I am particularly concerned that savers are more vulnerable than ever to unscrupulous scam artists. This policy must not become the freedom to liberate people of their savings," he said.

"The freedom and choice reforms were apparently a surprise for the pensions minister, never mind the pensions industry, so a review of how they are working makes sense," said pensions expert Stephen Scholefield of Pinsent Masons, the law firm behind Out-Law.com.

"Future retirees will increasingly rely on defined contribution pension savings, so need to be supported in making decisions that are right for them. As ever, the challenge is to provide helpful and cost effective support, and to encourage greater engagement in pension saving, without drowning people in complexity," he said.

Announcement of the new inquiry came a few days after the UK's state-backed National Employment Savings Trust (NEST) called for "governed pathways" to provide more support for its members, especially those on lower incomes. It said that its members, the majority of whom have been automatically enrolled into the scheme, were "particularly vulnerable" to paying more in charges and taxes, missing out on investment growth, running out of money or underspending their pension pots.

The comments were made as part of NEST's formal response to a programme of work on retirement outcomes currently being carried out by regulators the Financial Conduct Authority (FCA). The FCA launched its retirement outcomes review in July 2016 to study how the retirement income market is evolving since the introduction of the pension freedoms in April 2015. Its final report is anticipated early next year.

In an interim report, published in July, the FCA noted a significant shift away from annuity purchase into drawdown products since the introduction of the reforms. However, the FCA said that it has some concerns that savers may not be obtaining "good value" when deciding what to do with their money without first taking financial advice.

Among people aged 55 and over and planning to retire in the next two years, just 7% have used the free, government-backed Pension Wise guidance service, according to the Work and Pensions Committee. As part of its call for evidence, it is seeking views on whether the service should be reformed; as well as a broader question about whether people are taking proportionate advice and guidance about what they should be doing with their retirement savings and if not, why not.

The committee also intends to examine the role played by automated advice and guidance services in addressing 'gaps' in the pension advice market, and whether plans to develop a consolidated pension 'dashboard' allowing savers to see their various retirement income streams in one please will enable them to make more informed decisions about their retirement savings. It is also seeking views on whether there is sufficient competition in the market, and what more could be done to encourage consumers to switch between product providers.

On scams, the committee is seeking views on whether the government and FCA are taking adequate steps to prevent scamming and mis-selling from taking place. Field cited recent reports by The Pensions Regulator of rogue pension websites carrying prominent anti-scam messaging and warning messages in an attempt to mislead consumers into believing that they are legitimate investment vehicles. However, the committee announcement makes no reference to recent government initiatives aimed at tackling pension scams, such as the impending ban on cold calls relating to pension products and new restrictions on the statutory right to transfer.

Pension scams expert Ben Fairhead of Pinsent Masons questioned what the committee meant by 'scams' in this context.

"So far it feels like the evidence of scams arising from freedom and choice is rather anecdotal and based on statistics that could be open to various interpretations," he said.

"It would be helpful if this inquiry could gather in clearer evidence of the types of scams individuals are believed to be falling prey to specifically as a result of freedom and choice. These are presumably more likely to be investment scams where cash is falling into the hands of fraudsters after perfectly legitimate withdrawals from pensions rather than as a result of transfers into suspicious schemes," he said.

The latter had been addressed by the government in its recent consultation, "which perhaps surprisingly doesn't even get a mention in the scope of the inquiry", Fairhead said.

"Investment scams are an entirely different matter, although potentially more difficult to resolve other than through heightened public awareness," he said.

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