The introduction of pension freedoms by the then Chancellor of the Exchequer George Osborne was one of the biggest changes to UK pensions in history, giving people much more control over their pension savings. Their impact will now be probed by parliament’s work and pensions select committee.
Traditionally, people would buy an annuity with their pension savings which would then pay them a guaranteed income for life. The new rules, however, meant that people no longer had to do this with their pension, and could choose from a wide range of options. This could include putting the money into an ISA, a savings account, investing in stocks and shares, starting or investing in a business as well as a traditional annuity. Essentially, savers can now do whatever they like with the money in their pension pot. Since the rules were relaxed in 2015, more than £10 billion has been withdrawn from pension pots as a lump sum or taken as income, with sales of annuities dropping sharply. Chair of parliament's work and pensions select committee 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."
One of the major concerns is that pension savers are now more vulnerable to fraudsters who have seen the new freedoms as an opportunity to liberate people of their savings. The inquiry by the committee will examine what choices people are now making with their pension savings, how they reached those decisions, what advice and guidance was available and how the pension product market is now working.
The inquiry comes as the Financial Conduct Authority (FCA) is considering imposing new consumer protections on the market amid the concerns that people are being stung by high charges or moving their savings to unsuitable investments.
Former pensions minister, Sir Steve Webb who was instrumental in bringing in the said that pension freedoms have been a big success, but welcomed the committee's inquiry.
"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. The select committee is right to look into ways that the operation of the freedoms could be improved. 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 over their money to scammers."
The introduction of pension freedoms was one of the biggest changes to UK pensions, giving people more control over their pension savings.