Changes to the pensions industry, announced by George Osborne in last week’s budget, must be backed up by robust measures, which include independent and impartial support and guidance, according to the consumer group Which?
The chancellor announced what is being called the most radical shake-up of the pensions system ever on Wednesday.
He said that people are “capable of making decisions” when it comes to their retirement pots and scrapped the need to buy annuities. However, there have been warnings that a failure to ensure impartial guidance could mean that people are given the wrong information and could even be mis-sold products.
A survey by Which? found that almost half of savers (42%) do not trust their providers to act in their best interests, whilst four in 10 (38%) said that when they were contacted by their provider, they weren’t given clear information that they could potentially get a higher annuity if they shopped around.
Which? executive director Richard Lloyd said, “The chancellor is right to fix the annuities market which is clearly not working in the best interests of consumers.
“Instead of questioning whether people can be trusted with their own money, the debate should focus on how to give them genuinely impartial guidance and advice so they can get the best income in their retirement. We look forward to working with the government and industry to deliver what consumers need at this critical time in their financial lives.”
Labour’s shadow work and pensions secretary Rachel Reeves also said in an article for the Independent that the government should “go further to help people turn more of their hard-earned savings into a decent income in retirement”.
She added, “We want the government to make sure there is independent support for people to maximise their retirement income. The Treasury must publish a fully costed implementation plan for the delivery of high-quality advice, including steps to combat the risk of mis-selling”.
Since the budget speech, the insurance industry saw £3bn wiped off its shares, with leading annuity companies such as Aviva and Prudential experiencing falls.
Although many welcomed the new measures, there remains doubt as to whether pensioners will be in the best position to manage their finances.
Julian Parrott, financial adviser at Edinburgh-based Ethical Futures, said, “I feel that though imperfect, the annuity does provide some certainty for many pensioners and it’s debatable that they can genuinely manage their assets to maintain a lifelong income.
“The new ‘freedom’ over pension benefits may well prove to be illusory once people look at and hopefully understand the alternatives.”
Meanwhile, a recent report by the Financial Conduct Authority (FCA) condemned the pensions industry as being “disorderly” in its operations, saying that some pensioners were missing out on as much as £1,500 by not shopping around.