The government must tread very carefully when it comes to supervising the new pension freedoms
The negative headlines have begun. We don’t want to gloat, but Pensions Insight has warned from the start that the new pension freedoms will create a huge amount of complexity for savers and providers alike.
Now it transpires that most providers are failing to offer members the flexibility that the government has promised. A Telegraph investigation has revealed that some savers are being charged up to £240 each time they access their pots; others are being prevented from making withdrawals of under £5,000.
The issue is being noticed in the highest echelons of government. In a House of Lords debate yesterday, Labour lords challenged their Conservative counterparts, asking whether the government plans to set a cap on drawdown charges.
The Tory peer Lord Freud said that the government is keeping a “close eye on this” and “if it looks appropriate, we will introduce a cap on charges.”
To which the Labour peer Lord Hughes of Woodside responded: “My Lords, when this policy was first made, to a great fanfare of trumpets, the Government were warned of the difficulties that would arise unless they took control of the matter. What the Minister is really saying is that no planning was done whatever and no thought whatever was given to how this matter would develop. Is he aware that, the way things are going, this will make the PPI scandal look like a children’s tea party?”
Today, the pensions minister, Ros Altmann and the economic secretary to the treasury, Harriett Baldwin, called it “disappointing” that “some providers have chosen to focus their efforts on far too narrow a range of options”, writing for This is Money.
The government is in a difficult position. It must appear supportive of savers and protective of their interests – especially in a new market where people are more vulnerable to exploitation.
However, the government must be acutely conscious of the fact that it introduced these sweeping reforms with zero warning or industry consultation. The industry and schemes alike have had to completely change the way they work in a very short space of time.
Some of the providers’ frustration is reflected in the Association of British Insurers’ response to the Telegraph’s investigation: “…the ABI reiterates that insurers support the pension reforms and have worked round the clock to ensure that they are implemented as smoothly as possible. All insurers offer full withdrawal of the pension fund as a lump sum, and most offer different options such as drawdown or lump sums.”
The Conservatives are right to wait and see whether a cap is necessary. It is still early days for these reforms and providers are still putting their houses in order.
However, the government must be tough on providers if there is evidence that they are wilfully contravening the spirit of the reforms.
After all, savers have been promised freedom and choice and that is what they must get.