Select committee probes pension freedoms as concerns grow

Announced on Wednesday, the probe will primarily focus on the threat from scammers, after the Pensions Regulator alerted the committee that its own anti-scam campaign material was being used fraudulently to trick consumers.

The committee has urged those who have come into contact with scammers to share their experiences, and will accept written evidence submitted by October 23.

But the inquiry will also consider the broader impact of pension freedoms, spurred on by the Financial Conduct Authority’s recent findings that most savers are accessing defined contribution pots early, albeit with relatively small pot sizes.

People are taking money out of tax-exempt pension funds and then simply dumping it in bank accounts

Tom McPhail, Hargreaves Lansdown

The committee highlighted that just 7 per cent of people aged over 55 and planning to retire in the next two years have used the government's Pension Wise guidance service. It has also asked for evidence on the use of advice.

“Pension freedom and choice liberated savers to choose what they wanted to do with their own money. 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,” said Frank Field, the Labour MP and veteran chair of the committee.

“In this case it is vital that adequate support ensures people are equipped to ensure they don’t make decisions they subsequently regret.”

The committee is also seeking evidence on the level of competition in the decumulation market, the health of the annuities market, and whether other policies are undermining the objectives of freedom and choice.

Committee to focus on scams

The committee’s focus on scams comes amid slow-moving policy tackling liberation fraud and other investment-related scams.

The government last month confirmed it will revive the ban on pensions cold calling “when parliamentary time allows”; that could see the legislation finally passed, more than a year after it was originally introduced in chancellor Philip Hammond’s Autumn Statement last year.

“I think there’s clearly a lot more that can be done to address the issue of fraud around pensions,” said Tom McPhail, head of retirement policy at Hargreaves Lansdown.

He said he hoped to see policy interventions create “an effective distinction between legitimate regulated advisers giving good support to customers, and the unregulated predators who are simply looking to exploit people’s ignorance”.

Support the consumer

However, he also welcomed the inquiry’s broader scope, saying the FCA’s retirement outcomes review had highlighted issues with the current system.

“People are taking money out of tax-exempt pension funds and then simply dumping it in bank accounts,” said McPhail, recommending a renewed focus on engagement and education.

“Engagement is the key theme,” agreed Richard Birkin, director of tax, pensions and legal at consultancy KMPG. “The issue, I think, is that engagement shouldn’t just be at retirement, it should start before retirement.”

However, Birkin said he was unsure what specific policy recommendations the WPC could make to improve education and engagement.

Engagement or defaults?

Instead he argued it was a shared responsibility of employers, trustees and providers to start delivering a “targeted personalised message” to members. While members may not have a concrete idea of their retirement age in the middle of their careers, a steady feed of information will improve their understanding of their finances.

“The industry’s been trying to engage people for goodness knows how long,” countered Darren Philp, head of policy at mastertrust the People’s Pension.

While he thought attempts to improve engagement should not be given up on, he hoped the industry and policymakers might push towards the creation of defaults in retirement.

“It gives [members] a degree of freedom but it makes sure they aren’t doing something that they’re going to regret later on,” he said.