Whichever way you look at it, ‘freedom and choice’ has been a flop, finds Sara Benwell

We’re coming up to the summer holidays, university students have sat their exams and grades are imminent. It’s a time for reflection, reviews and report cards. So we decided to take a look at how the government has done on its ‘freedom and choice’ modules.


When evaluating whether or not a policy has been a success it is important to look at what it set out to achieve.

In the case of ultimate pensions freedoms, chancellor George Osborne had some key objectives that he hoped the legislation would achieve.

1. From April 2015, individuals from the age of 55 with a defined contribution pension will be able to access their entire pension flexibly if they wish.

2. These reforms create more choices for individuals, and we want people to be equipped and ready to make informed decisions.

3. The guidance guarantee will empower savers, making sure that they are clear on their retirement income options before they make any decisions about what to do with their savings.

4. I want as many people as possible to be able to access their pension flexibly. That is why the government has decided to continue to allow those saving into private sector defined benefit pension schemes to transfer to defined contribution schemes, subject to new safeguards which are designed to protect the best interests of the saver and the scheme.

Accessing pensions flexibly

To give the government credit, it’s fair to say it has achieved a modicum of success here, in that it has removed the barriers that prevented people from accessing pensions however they wished. Certainly – it is true that people are no longer forced to buy an annuity.

Unfortunately, when it comes to full flexibility it has been a bit of a mixed bag. And while retirees can access drawdown products, many people will have to transfer into the retail world to do so.

While retirees can access drawdown products, many people will have to transfer into the retail world to do so”

For those who do switch, the fees can be crippling. Citizens Advice analysis reveals up to 160,000 people have paid fees when accessing their pension since the freedoms were introduced. Those with smaller pots were hit the hardest, paying an average of £1,966 in fees. For some consumers this can mean they have lost 10% of their retirement savings to charges levied by providers.

Suggestions that people will be able to use their pension like a bank account have been at best misleading and at worse dangerous.

Over time, it is likely that all the freedoms will become more accessible, but it is a long journey and one that is only just beginning. And back in April 2015 – the deadline Osborne set for freedom – it was pretty much a non-starter.

We grade that a C for ‘acceptable, but needs serious work’.

Equipping people to make financial decisions

A third of the UK population don’t know anything about the pension freedoms according to the newest findings of the fifth UK Readiness Report from Aegon.

So in terms of whether people are ready to make informed decisions – I think it’s fair to say that the government has wholly failed

With Citizens Advice reporting that since freedom and choice 70% of people failed to shop around, it’s hard to make a case for prepared retirees. Particularly when the FCA has previously found that 80% of annuity investors could benefit from shopping around at retirement.

I think it’s fair to say that the government has wholly failed”

When you delve deeper into the figures the picture is even more worrying. The charity found a quarter of consumers who stayed with their pension provider did so because they thought the product they were offered delivered the best value - despite not looking at options with other providers.

And the number of research reports finding that people are perplexed by pensions generally paints an alarming picture.

On ensuring people are equipped and ready to make informed decisions the government scores an F.

The guidance guarantee will empower savers

The evidence suggests that people are feeling lost and confused when it comes to pensions, which doesn’t bode well for the government’s flagship retirement advice solution Pension Wise.

Reports of take up figures have been low”

And while the service has been well-received by those who use it – reports of take up figures have been low. 

Now, the government is planning to roll the three main guidance providers into one product in a bid to have a second, more successful crack at guidance. But with budgets being slashed it is unclear whether this will prove any more popular that previous attempts.

That said, I think the ‘average Joe’ has more awareness than before about what his options are. Although I’m not convinced Pension Wise can take all the credit.

Again it’s a C – the enthusiasm and the tools are there, but the results are lacking.

DB to DC transfers

This is perhaps the area where the government has performed best on ‘freedom and choice’, with some reports suggesting that around a third of DB savers who take advice go on to switch out.

This is good news in terms of the report card, but even the government has acknowledged that most people will be better off in DB.

Still – those in the DB world certainly have more access to freedoms and for those who want to transfer out, the option is available and relatively straightforward. Osborne gets an A.

Future objectives

A complex changeover like ‘freedom and choice’ was always going to be tricky – and part of the problem is that the government didn’t give the industry or the public anything like enough time to prepare for the new world of pensions.

But freedoms have happened and there is no going back. It is therefore crucial that the government learns from its mistakes and improves in the future.

There is some evidence of this happening. The outcomes of the Financial Advice Market review consultation showed a commitment to better advice and guidance for retirees, while the consultation on exit fees should make it easier for people to transfer out of existing pension arrangements.

People love ‘freedom and choice’ now Osborne needs to make sure it loves them back”

What will be imperative, however, is that George Osborne consults closely with the industry to ensure that future retirement products are well-thought-out and well governed. He must also take forward proposals to make sure people get guidance – or even better – advice. Not least to ensure that members are protected and educated about scams

Pension Wise can and should be an important tool in helping people understand what their retirement options are, and the government must not scrimp on promoting it to people.

Finally, he must ensure that the industry is innovating – on new products, advice delivery options and investment strategies.

People love ‘freedom and choice’ now Osborne needs to make sure it loves them back.