Increased risk of scams

The Work and Pensions Committee are concerned that people have been placed at risk of being exploited by financial scammers to take advantage of the opportunity that people can now access their full fund as cash, less tax at their marginal rate.

After the new pension freedoms were introduced in April 2015, during April and May 65,000 people had taken £1 billion of funds as cash with an average amount of £15,500.

Over the months April, May and June 204,000 people accessed their funds, twice the number in the same period in 2013 probably due to the a backlog waiting to see the new rules. Annuity sales have reduced considerably over this time from 90,000 in the second quarter 2013 to only 12,000 for the same period this year.

Some 121,000 people have accessed their fund by cash withdrawal and 71,000 by either flex-access drawdown and fixed term annuity.

The committee see the lack of suitable advice as a danger for people approaching retirement. Frank Field, Chair of the Committee, is concerned over the lack of information about the reform and if the Pension Wise service is working.

Pension Wise is a web, phone-based and face-to-face service provided by Citizen Advice and has provided 20,000 guidance appointments since the service started.

Pension freedom reforms have been operating for six months and if this is enough time for the scammers to set up schemes going to defraud people of their savings it should be long enough for the Government to publish data to show if the guidance and advice is working.

In particular the Committee criticised the Pension Wise website as being static and not offering opportunities for personalisation. The take-up for the service has been lower than expected and the Committee have said that it should have at least an online income calculator.

The report has said that the freedom to choose was not enough and people must also have the freedom to make an informed choice.