Tougher watchdog needed to protect retirees

The government needs to establish a powerful new pensions watchdog to ensure people are not ripped off when they come to access their retirement savings, MPs have warned.

The Commons Work and Pensions Committee said moves by the coalition to relax the rules on pensions meant it was more important than ever that proper protections were in place.

It was scathing about the pensions industry saying it had a "poor record" when it came to acting in the best interests of savers and needed to rebuild the trust with the public.

As a result of reforms announced by Chancellor George Osborne in his last Budget, from next month savers will no longer be required to buy an annuity - providing a regular annual income - when they cash in their pension pot.

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The committee said that while the measure had the potential to encourage more retirement saving by making it more attractive, there were also dangers involved.
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"There are also significant risks for individuals from the new freedoms," it said.

"These include: failing to make provision for the whole period of retirement or making decisions resulting in insufficient income in retirement; and exposure to fraudulent, mis-sold or detrimental financial products."

It said that it was "questionable" whether government plans to establish a guidance service, known as Pension Wise, were sufficient to offset the potential risks - particularly given the low level of understanding of pension products which had, in turn, given rise to a lack of trust in the industry.

"This lack of trust has been exacerbated by the pensions industry's poor record on acting in savers' best interests when they access their pension pots, particularly in relation to annuities," the report said.

"Savers have previously suffered detriment because some providers did not do enough to ensure that they purchased the right annuity product from the right company. This is unacceptable.

"Pension providers need to do more to save consumers from taking poor decisions, by focusing on consumers' best interests rather than their own."

The committee expressed concern about the ability of the Financial Conduct Authority to regulate pensions effectively, after it was told by one FCA witness that they cannot "stop fools acting like fools".

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It said that the creation of single regulator specifically for pensions, would ensure that it had a "clear focus" on the whole retirement saving process.

"The case for taking this step is even stronger now, given the greater risks to savers from fraud, and detrimental financial products, which accompany the undoubted advantages of the new flexibilities," it said.

"Savers would have clarity on who was responsible for providing guidance and redress, and employers and the pensions industry would have a single body to advise and supervise them."

The committee chair, Dame Anne Begg said: "Savers need to be properly protected from being ripped off in frauds or scams, or suffering financial loss from making the wrong decision about how to use their pension pots.

"The scale and pace of recent changes in pensions policy have completely changed the retirement saving landscape. It is necessary to draw breath and review the extent of the changes and their implications."