New inquiry will probe fraud risks around new pension freedoms
Police figures already show that over £43 million in pension savings has been lost to fraud, the Work and Pensions Committee says.
Concerns that savers could be at risk of scams as people take up the new pension freedoms are being probed by MPs.
The Work and Pensions Committee is launching an inquiry into whether and how far the pension reforms are achieving their objectives and whether changes are needed.
It wants to know if enough is being done to prevent scams and mis-selling.
Launched in 2015, the freedoms give the over-55s a much wider range of choices over how they use their retirement savings.
But the committee said police figures show that more than £43 million of retirement savings has been lost to fraud since the policy was announced.
The committee also said there have been recent warnings that an anti-scammer kitemark is being used fraudulently by some.
The committee said that for many people the choice of what to do with their pension savings in preparation for retirement will be the biggest financial decision they make.
But it said research suggests people are making their pension choices without the support available, increasing the risk they will not get the best value from their savings.
Of people aged 55 and over planning to retire in the next two years, just 7% used the free and impartial Pension Wise guidance service, it said.
Committee chairman Frank Field said: “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.
“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.”
Sir Steve Webb, a former pensions minister who played a key role in a string of pensions reforms, said the pension freedoms have been “overwhelmingly positive”, with many thousands of people enjoying the opportunity to use their pension savings in a way that works for them.
He continued: “But the select committee is right to look into ways that the operation of the freedoms could be improved.”
Sir Steve, who is now director of policy at Royal London, continued: “Not enough people are taking advice or guidance about one of the most important financial decisions they will ever make, and there is indeed a risk of people being persuaded to hand their money over to scammers…
“There is also a concern that people are taking money out of a pension where it is growing and being invested and parking it in a low-interest cash savings account.
“The opportunity to get things right under pension freedoms is considerable, but savers need more help and advice to make sure that they can take full advantage of those freedoms.”
A Department for Work and Pensions spokesman said: “Pension freedoms give people choice over how they use their hard-earned savings, but it is important that they are aware of the risks of fraud and seek proper guidance before accessing their money.
“Alongside the guidance provided by Pension Wise our proposed new measures to ban pensions cold-calling will ensure that savers are protected from the threat of pension scammers and we look forward to working with the committee on this inquiry.”
A Her Majesty’s Treasury spokesperson said: “We have tabled an amendment to the Financial Guidance and Claims bill which will require pension providers to signpost savers to advice or guidance and ask them if they wish to take advice or guidance, or if they explicitly wish to proceed without this.
“Pension Freedoms give hardworking people greater power over how they access their pensions.
“To help people make confident and informed decisions on how to use their pension savings, we have introduced a free and independent Pension Wise service.”
The committee is inviting written evidence by October 23.
Questions it wants to consider include:
:: What are people doing with their pension pots and are those decisions consistent with their objectives?
:: Is there adequate monitoring of the decisions being made?
:: Are people taking proportionate advice and guidance and if not, why not? Are people adjusting behaviour in response to advice and guidance?
:: Is Pension Wise working? If not, how should it be reformed?
:: Are there persistent gaps in the advice and guidance market and what might fill them?
:: Are people switching from their pension provider in accessing their pots?
:: Is an adequate annuity market being sustained?
:: Are the Government and Financial Conduct Authority taking adequate steps to prevent scamming and mis-selling?
:: Are the freedom and choice reforms part of a coherent retirement saving strategy? To what extent is it complementary to or undermined by other policies?