Pension freedom inquiry launched as DWP is urged to review

Pension freedoms rules were introduced in 2015 and they generally allow retirees to access their private pensions through a multitude of ways. Yesterday, the Work and Pensions Committee announced they will be focusing on these access rules in the second part of it’s broad inquiry into the impact of the pension freedoms and the protection of savers.

“Navigating pension options is no easy feat, and one which won’t be achieved without access to support, advice and guidance, so it is vital that there is attention in Parliament on whether people have access to the support they need to make informed choices, or whether further changes need to be made.”

In early February, the FCA altered pension laws in an effort to provide savers with more information and clarity.

Going forward, pension savers will be presented with four possible retirement objectives when they attempt to withdraw or move funds and, depending on which of these objectives most closely mirrors what they wish to do, will then dictate what “investment pathway” they should be presented with and follow.

This guidance will be provided to non-advised consumers who are either entering drawdown or transferring-in assets already in drawdown.

Jon reflected on these recent changes and focused on what the Committee should address going forward: “Investment pathways are a step forward, and will help many unadvised savers navigate the choice of investment solutions aligned to their drawdown objectives, but there is certainly more to be done.

“It’s hoped the Committee will wade into debates around small pot consolidation, and recognise that the problem won’t be solved by behavioural changes or the introduction of pension dashboards.

“What’s required is a scheme-led consolidation system to allow savers to benefit from consolidation.

“But the government’s recent consultation on increasing the normal minimum pension age (NMPA) to 57 and the various transitional protections proposed introduces an additional layer of complexity to pension pot consolidation.

“With the difficult economic environment set to continue for some time to come, the Committee should consider, perhaps in the third phase of their work, other aspects of the pension system to see if they are working as they should.

“The Money Purchase Annual Allowance (MPAA), for example, is a contradiction to the principles of freedom and flexibility and the Committee could consider whether it is achieving the desired outcome and explore whether a general anti-abuse approach could work better than the rigid, strict approach currently employed.”

The MPAA allows people to pay up to £40,000 a year into a pension scheme and get tax relief on the contributions, however, should a person start to take money from their scheme, the amount they’ll be able to pay in and still get tax relief on will reduce.

It should be noted that as the initial inquiries into pension freedoms were launched in mid 2020 and have yet to have a full response, it is unlikely that the results of this second part will emerge before the summer.

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