PENSIONS could become the next mis-selling scandal if stronger support is not offered to consumers taking up the new retirement freedoms, MPs have warned.
The House of Commons work and pensions committee said the freedom introduced in April is “not yet operating entirely as it should” and a lack of clarity is “endangering pension savers”.
It said: “To not provide the basis for a well-informed choice could lead to the next major pensions mis-selling scandal.”
Improvements to guidance and advice are crucial to the success of the policy, the committee said. It urged the government to do more to highlight the dangers of pension scams to consumers.
The new freedoms give people aged 55 and over greater choice on how they use their pension pot. Generally, the first 25 per cent of the pot is tax-free.
A free guidance service, Pension Wise, was introduced alongside the reforms. The service offers a one-off 45-minute guidance session in person or by phone, as well as offering information online.
The committee said Pension Wise was created to fill a potentially dangerous gap in support for consumers, including for those people who are unable or unwilling to pay for independent financial advice.
But it described the Pension Wise website as “not fit for purpose”, adding: “It is static, offering no opportunities for personalisation, and lags well behind many private services.”
It said this is particularly concerning given that the website is the main guidance channel for many consumers. As a “matter of urgency”, the government should ensure the website provides a calculator so people can work out what their income might be, and examples tailored to people’s individual circumstances.
Consideration should also be given to the possibility of offering customers two or more Pension Wise guidance sessions rather than just one.
The committee also raised concerns about “the near complete lack of data about Pension Wise”. It said: “The government’s reticence in publishing statistics on the effects of its pension freedom policy, a full six months after the reforms, is unacceptable.”