MPs in the House of Commons Work and Pensions Select Committee who are currently conducting an inquiry into pension freedoms have heard this week how some British retirees are using their pension pots under the new legislation to fund alcohol and gambling binges. Following this, they are falling back on the government for help.
In a written submission from a welfare rights officer for Lancashire County Council called Pamela Hewitt said that in one case, a male client who had held a well-paid job sought help when his housing and tax benefits were cut off, due to a breach of capital rules. Producing evidence that he had no capital at all, it was later revealed that just six months before making his claim, the gentleman had released £120,000 from his pension spot, spending it all on gambling, a car and alcohol.
"I think he chose to spend his money, not to take advantage of the benefits system, but because he didn't care what happened to him, had addiction issues and knew there would eventually be a safety net. [The man's] pension pot had originally been worth nearly a quarter of a million pounds, he released all that he could to himself, even against the advice of his accountant," Mrs Hewitt said.
Eventually, the man's benefits were restored, even though benefits can be withdrawn if it is deemed that someone has deliberately run down savings to secure state benefits.
"I felt this case study showed an example of unintended consequences of pension freedom," she said. "If [the man] had not been able to access his pension pot, I can only assume that the years leading up to retirement would have been more stable," said Mrs Hewitt.
Pensions freedoms were brought in by the coalition government to give people more choice in retirement. Pensions minister at the time, Sir Steve Webb said at the time he was relaxed about the potential for people to waste their pension pot.
"[If they] do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice."
In written evidence to the Work and Pensions Committee earlier this month, Sir Steve Webb still backed pension freedoms:
"Many pension savers with modest pension pots were getting poor outcomes because they were effectively "forced" to buy annuities, often without shopping around and getting the best deal. The pension freedoms have given pension choices previously enjoyed only by the relative wealth to a much wider range of people."