Pension reform disaster? The industry weighs in
Royal London, one of the UK’s biggest pension firms, has warned that George Osborne’s new pension freedom reforms could be a disaster.
The firm said there was a very clear risk that retirees could make bad decisions as a result of the changes, with the prospect of pensioners withdrawing billions of pounds from their funds within the first few months of new rules taking effect. From April, there will be no obligation for retirees to convert their pensions into annuities, leaving people free to do whatever they like with their retirement cash. While this grants significant financial freedom to retirees, Royal London believes confusion over the new rules and a desire to withdraw everything at once will create a pensions gold rush that could have calamitous consequences.
The government has announced the introduction of a ‘free and impartial’ guidance service called Pension Wise, that will offer advice and answer questions online, face to face and by phone. Royal London, however, says that its own attempts to offer an advisory service to its 5 million customers failed completely. During the three months (October – December last year) the service was available, the response rate was a meagre 2 per cent.
“We wholeheartedly support the policy objective, but customers are not ready for the new pension freedoms, which have been thrown into place in an entirely unrealistic timescale,” said Phil Loney, Royal London’s chief executive. “I fear that many will make wrong, often irrecoverable, decisions about their retirement and this will result in some very poor outcomes.”
“A misselling scandal of some description is almost inevitable as pensioners get targeted and exploited,” said Neil Lovatt, product director at Scottish Friendly. “The biggest concern is that pension assets will be used and abused outside the confines of the protection currently afforded by the regulated financial services sector and individual advice.”