Webb: Some will ‘make the wrong choices’ with their pension
It is to be expected that mistakes will happen under the new freedoms, Webb told delegates at a conference on 17 November.
But he said this would not disprove the value of the reforms announced by the Chancellor in his March Budget.
“This coming April some people will get it wrong,” Webb said in a speech at the ICAEW Retirement Savings Summit in London.
“They will make the wrong choices. They will get a worse outcome than if they had, for example, fully taken up our guidance or paid for advice, or if they had bought an annuity.
“Some people that will happen to – that’s what happens when you set people free.
“We need to be absolutely upfront about that. We have a responsibility, having set people free, to equip them as much as we can. But that doesn’t invalidate what we are trying to do.”
He added: “Actually, lots of people [are getting] sub-optimal outcomes from the system we are moving away from. That’s the comparative.”
The government is in the final stages of debating the Pensions Tax Bill and legislation around the ‘guidance guarantee’ – the promise announced in the Budget of a free guidance service for people aged 55 and over.
The guidance will mainly be delivered by The Pensions Advisory Service and the Citizens Advice Bureau, after the Money Advice Service was withdrawn from the provider panel.
Webb said he expected the free guidance would encourage people to seek full regulated advice after sitting through the guidance consultation.
He said: “I see this as a taster, that people will actually have the guidance and, for many people now and in the future, they will realise they now have choices they’ve never had before. I hope one of the things a guidance conversation will do is help people realise that advice might be worth paying for.
“I think this will feed demand for regulated financial advice, particularly if we can find ways to make sure there is something at ‘budget’ end of the market, something that meets needs in a regulated way but doesn’t necessarily cover the entire waterfront.”