Pension reform rip-offs ‘could be new PPI scandal’
MPs sound alarm over lack of advice for over-55s
THE failure to help the over-55s take advantage of new pension freedoms could become the latest mis- selling scandal, MPs warned last night.
Unless better guidance is given, savers are at risk from fraudsters and rip-off administration fees, they say.
In a stark warning, the Commons work and pensions committee said in a report that consumers were not being given enough advice by the Government or the pensions industry to make an informed choice about the risks and benefits of cashing in their pensions early.
‘To not provide the basis for a wellinformed choice could lead to the next major mis-selling scandal,’ it said.
Committee chairman Frank Field, a former Labour social security minister, said it was already clear that fraudsters and conmen were targeting people suddenly given the freedom to withdraw large sums of cash from their savings.
Mr Field said: ‘These reforms have been in operation for six months now: it is evident that that has been long enough for the scammers to get going, working on defrauding people out of their life savings – it should be long enough for Government to have published some data about how the reforms and the attendant guidance and advice are working.’
He added: ‘We have seen all too clearly, too many times, what happens when financial information is not properly provided and regulated. We literally cannot afford another financial mis-selling scandal.’
One such scandal over payment protection insurance (PPI) has left banks with a compensation bill of billions.
Chancellor George Osborne was hailed for unleashing a pensions revolution by ending rules that forced people to use their pension pots to buy an annuity, many of which offered poor value. Since April this year, the over-55s have been free to cash in their pension pot for a lump sum or use it like a bank account.
The reforms were widely welcomed, but many savers found they were unable to access their money in the way they wished as the pensions industry struggled to keep pace.
Critics have raised concerns that retirees could spend their entire pension pot and be left with nothing for their later years. There has also been an increase in pension scams, with fraudsters capitalising on the confusion surrounding the reforms to dupe unsuspecting savers. And the Government’s ‘Pension Wise’ service, which gives free information on the reforms, has been criticised as inadequate. The service offers a one-off 45-minute guidance session in person or over the telephone, as well as offering information online. The report warns it is ‘not fit for purpose’.
The Government should urgently ensure the website provides a calculator so people can work out what their income might be, as well as examples tailored to people’s individual circumstances, it said.
It al so condemned t he ‘dearth of information’ collected by officials on how the new freedoms and the Pension Wise service were being used.
The report called on the Government to crack down on disreputable pension providers and give better public warnings about scams. It also asked for complicated pricing systems to be simplified and a reduction in ‘jargon’ used by experts.
Charges f or savers were described as ‘an area of concern’. The committee may look into the issue separately.
Unofficial figures revealed by an industry body last week showed a fifth of those who could have used the freedoms will have done so by the end of the year – 430,000 people out of 2.2million eligible.
Fewer than one in ten people researching their options had used Pension Wise, according to the Pensions and Lifetime Savings Association.
A Treasury spokesman last night insisted ministers took the threat of fraud very seriously and were working with police, regulators and other bodies to protect consumers.
The Treasury also insisted Pension Wise had proved ‘a real success story’, with users making 1.5million website visits and booking 20,000 appointments.
‘Not fit for purpose’