MPs’ plan would ‘destroy spirit of pension freedoms’

Pension companies should funnel savers into “default” funds at the point of retirement, an influential committee of MPs has said. In the final part of its inquiry into the pension freedom reforms, the work and pensions committee called on the Government to force firms to offer a “pathway” for retiring savers.

This would be subject to the same 0.75pc cap on management fees in force while people build up their savings. But firms have hit out at the plans, arguing they would stop people engaging with their pensions.

The 2015 reforms handed greater control to over-55s around how they spend their pensions, but also shifted responsibility on to individuals.

Most people now put their pension cash into “drawdown” accounts, where money remains invested into retirement. In the past, almost everyone bought an annuity, an insurance contract that pays a fixed income for life.

Jon Greer of Old Mutual Wealth, a pension company, said the committee’s proposals risked savers “sleepwalking” into retirement. “Drawdown requires engagement from savers and shouldn’t be a passive choice,” he said.

“According to the City watchdog’s review of DIY pension investors, 37pc of drawdown sales are made without advice. It is clear that this is a considerable issue and needs to be addressed. But a solution needs to focus on engagement, which a default fundamentally goes against.”

Sir Steve Webb, director at mutual Royal London, said the proposals would “destroy the spirit of the pension freedoms”.

He said it would be impossible for a provider to know what was the best option for a saver without having knowledge of their other assets.

But MP Frank Field, committee chairman, argued introducing a “simple, suitable default pension option” would provide a “solid base” for savers. He said: “They would be armed with a new range of clear, transparent information in making their choices.”