“About 2,000 people access money in a defined contribution pension for the first time every working day,” said Stephen Lowe, group communications director at Just. “Pension freedom is certainly happening, but we are a long way from knowing if it is working.”
He said that although the numbers show access to individual pension pots, there is insufficient aggregated information allowing the Government or industry to get a sense of whether people are making sensible decisions in the context of all their pensions and investments.
“FCA figures show that half of those accessing pensions for the first time are choosing to take the whole fund. That seems like a high proportion, but we don’t know what other assets they may have.”
He said that take-up of guidance through Pension Wise and regulated financial advice remains low, despite the increasing choice and complexity, the risk of poor outcomes through making irreversible choices and the activities of fraudsters.
“What some people see as a pensions freedom has actually become a free for all,” he said. “The majority may be acting sensibly but others, perhaps a significant number, are probably making short-term decisions that they will come to regret later. But with so little insight we have no idea who these people are or how many are involved.
“There are some red flags being waved. We know, for example, that the extra income tax paid in the first year was five times higher than forecast. It’s been argued this doesn’t prove people are making bad decisions but I would say that it is complacent to assume they are making good ones.
“Rather than enjoying the view, many of us in the industry are well aware that we are flying blind and the further we go on this journey the more likely we are to head into trouble.”
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