So How Are Those 'Pension Freedoms' Working Out?

In April 2015 the UK woke up to a world of freedom. Pension freedom. From that date if you had a defined contribution pension pot and were 55 or over, it was up to you what you did with the money. You could buy an annuity, you could drawdown your cash and leave some invested, you could buy a Ferrari (or a Lamborghini) if you had been particularly thrifty.

Of course sports car purchases would be limited to those who had been extremely thrifty and had some pension pot to spare. Actuarially most people who retire today will live a reasonably long time and need finances to support themselves. The state pension, whether the old one or the single tier system coming into force in 2016, is not particularly generous and although you may have enough money to buy a sports car now there may be better things to put your money into if you want to have a comfortable retirement.

Also the amount of money contained in pension pots (even the small ones) tends to attract pension scammers. They often have some very clever ideas of how you can use most of your pension savings for things you want to do, and somehow get it all back through guaranteed return investments in slightly bespoke assets in unregulated markets. These rarely turn out well for anyone bar the scammer and the tax authorities.

The Government was aware of this and in parallel with the new pension freedoms arranged for a number of bodies to provide pension guidance sessions for those approaching retirement. These included Pension Wise, a "free and impartial government service about your defined pension option" through which you can book a face-to-face or telephonic "guidance" session. In the spirit of highlighting the existence of the site we have set out the appropriate link below.

www.pensionwise.gov.uk

Six months on the House of Commons Work and Pensions Committee has produced a report (the Report) on how this system is working out.

The Report

The Report is pessimistic about how the guidance system is working in practice, which the Committee considers to be particularly concerning given that it was put in place to cover savers who could not afford, or did not want, independent financial advice. The Report is even pessimistic about whether it is possible to assess how the guidance system is working as there are very limited figures on key issues.

What information is available points towards very limited use of Pension Wise and associated guidance sessions (with one of the providers - the CAB -...