New pension freedoms used by 60,000 pensioners

George Osborne declares pension policy a success: but is it?

Updated: 
Cities Devolution Bill

George Osborne has announced that 60,000 people have taken advantage of new pension freedoms in the two months since they were introduced - releasing £1 billion of cash from their pensions. He announced his conviction that the idea had been a complete success, but there are some who disagree.

The changes introduced in April allow anyone over the age of 55 to withdraw as much cash as they like from their pension - subject to income tax. On one level it has clearly been a huge success, with 60,000 people believing that it provides their best option for their retirement income.

Tom McPhail, Head of Pensions Research at Hargreaves Lansdown says: "We are seeing high levels of engagement and very positive feedback from investors." He points out that a huge number of them have taken the opportunity to turn their backs on annuities, saying: "Whilst the number of people taking money from their pensions has not significantly increased, the way they are doing so has, with less than one in ten of people currently choosing to buy an annuity, compared to 8 or 9 in ten only a couple of years ago."

There's a good chance that many of them have made excellent decisions. The average sum released is £17,000, which doesn't sound like many people are plundering large pension pots and blowing the lot on a fast car.

Charges

However, Osborne made a second announcement that hints at flaws in the new system. He has launched a consultation on capping how much pension companies can charge for withdrawing money. It seems to indicate that some companies are imposing significant penalties.

McPhail commented: "The government appears to be losing patience with those elements of the pensions industry which are failing to measure up to the promises of freedom. Every pension investor over the age of 55 should be able to access their retirement savings with the minimum of cost and administrative inconvenience. It is not acceptable to charge punitive exit penalties or to insist that investors pay for a financial adviser."

TUC General Secretary Frances O'Grady, meanwhile, saw this announcement as proof that the new system wasn't working. She said: "Pensions freedom is looking increasingly like a botched DIY job. The Chancellor is attempting to shave a bit off here and add a bit there just to make his flagship policy work. There were plenty of warnings that rushing in these changes was unwise. We need genuine action to remove unfair fees and charges on all pensions. Piecemeal reform would just be letting savers down."

Blocked

There's one group of people who would definitely see the changes as being far from successful: the many thousands who remain locked out of them because their pension provider has ether chosen never to offer flexibility - or just isn't ready to do so yet. According to some estimates as many as one in three pensioners have found themselves in this position.

Osborne said: "We have got to make sure people get the best advice, that the market responds, the companies up their game in helping customers make use of these freedoms and we will be watching these things very carefully". However, it's difficult to see how he will compel companies to offer complete flexibility in established products, or company schemes to change their rules - especially given the cost involved.

Simply highlighting the 60,000 who have taken advantage of the new rules - and ignoring the tens of thousands who have been prevented from doing so - is not an entirely fair reflection of the bigger picture. There's a small chance that in declaring the success of his own policy, Osborne may be taking an overly optimistic view.

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