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Labour could curb pension freedoms amid misselling concerns

A Labour government should rapidly identify methods to protect savers in the aftermath of pensions freedoms, shadow employment minister Stephen Timms says.

Speaking at a Pensions Policy Institute debate alongside pensions minister Steve Webb and financial secretary to the Treasury David Gauke yesterday, Timms said he expects a new wave of issues after 6 April, including both individuals underestimating their own longevity and potential misselling.

He said: “We should advise people just to pause and reflect before they decide what to do with their pensions pot, when they’re able to do that.

“In terms of longevity, this has to be one of the central things that there will need to be a discussion about as part of the guidance, and of the numbers and how long people are going to live.

“I do hope that people can be encouraged through that exercise, to take at least a realistic view about how long this is likely to be and if we don’t do that then we will have a problem.

If installed as pensions minister post-election, Timms said he would demand a “rapid review” of whether the safeguards surrounding the reforms are adequate.

He added: “My serious view is that they are not, and a new government will need to move quite quickly to deal with that.”

Webb responded to the Labour concerns as “over-paternalistic”, and accused Timms of targeting “undisciplined” decumulators.

He said: “The decumulation phrase is very different. They have a pot of money, are buying a product and that is potentially complicated so we should give them guidance.

“That is the difference for me – we see it as people using their own money to choose what they want to do with. Lots of individual freedoms and people making their own choice looks undisciplined, but I can live with undisciplined.

“There is a sense that a future Labour government at each turn would just ratchet back the paternalism.”

Speaking to Money Marketing after the event, Webb added: “The shadow of over-paternalism is always at the door and there is an instinct to control and to regulate.

“And just at the point we are giving freedoms, of course we have to be on our guard, but we have to hold back from thinking we know what is best.”


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. It’s easy to bandy words like ‘paternalistic’ around, but is Steve Webb certain that there are effective measures in place to ensure a large cohort of individuals don’t end up blowing their pension pot on day 1 and end up in poverty in retirement

    Sometimes, paternalism can be a good thing.

  2. Smithy

    I was at the FT Retirement conference a few weeks ago at which Webb gave a speech.
    I was able to ask a question – “You have told us how everyone is now responsible and how you advocate that they have the freedom to do as they wish with their own money. Please therefore explain why you are dragooning everyone into AE”

    Would it surprise you to learn that the answer was a typical piece of politicians double speak and drivel. Basically he is paternalistic on one and not on the other.

    We now have the nuMPties deliberating as to whether people can encash their annuities. This brings forth an encyclopaedia of questions and portends all kinds of horrible unexpected consequences.
    Far from being a Labour supporter it would seem that Mr Timms at least appears to have some basic appreciation of the problems. I wonder how many of those actually formulating these wonderful new ideas actually have relevant pensions?

    I can only hope that if the Labour party do get in they will increase triviality to (say) £50k, allow encashment for those who can medically prove they are terminally ill and then dismantle all this latest nonsense. If they do that and refuse an EU referendum I could almost see myself voting Labour for the first time in my life.

  3. I can’t wait for milk and honey land, supported by the SNP. Energy costs, capped, financial advice costs, capped. Government borrowing, unrestricted

  4. An annual withdrawal limit of 7½% would have prevented much of these (quite legitimate) concerns.

  5. @Julian

    7.5% !!!! That implies at the very least an investment growth 9% p.a without fail. If you can guarantee that to clients Sesame must have a pretty amazing investment proposition.

  6. But the lessons from Australia are that people OVERestimate their life expectancy and don’t spend enough. Why are people in the UK different?

    Without doubt there will be a small number of buffoons who blow the whole lot on day 1 (but won’t that be one hell of a party!!!), but why should the rest of the country be shackled by restrictions just to protect Mr & Mrs Moron from themselves. The only thing that needs to be done is to make Financial ADVICE compulsory for anyone retiring with a fund in excess of £100,000. One thing I know for a fact is that none of our clients will run out of money due to underestimating their life expectancy….

  7. If someone has got a total pension pot of less than 50k at retirement, paternalism associated with their pension is going to make NO difference to their retirement.
    As David Irving says, there is an argument for advice/paternalistic, but still letting the individual prioritise for pots in excess of round about £100k, but as a pension (in my view) has always been just deferred pay from a tax point of view, if the person wants to delay for 40 years and then draw it all out in one to 5 years, provided they accept the tax consequences of that (income tax), then the state hasn’t actually lost out.

  8. @Harry – I see what you mean about Steve Webb’s contradiction, BUT the pension freedoms combined with auto enrolment are NOT actually a contradiction.
    The pension freedoms give people the choice and auto enrolment does too if you view it as entry by the employee by default. Where AE falls down is compulsory employer contributions. Stakeholder would have worked if they had simply made it opt out rather than opt in and left it to the employer to choose whether to incentivise staff with a matched employer contribution or NOT rather than forcing the extra burden on the employer.

  9. Harry: I’m no cheerleader for auto-enrolment, but Steve Webb could simply have given this answer: “Pension freedoms are aimed at those who have built up a pension fund, and have thus shown that they can make their own decisions. Auto-enrolment is aimed at those who *don’t* have a pension fund and thus might need some “nudging” to help them provide for retirement. There is no contradiction, they are separate solutions for separate problems. No-one is being dragooned, if auto-enrolment isn’t right for you, you can opt out.”

  10. @ Sacha
    That simple to opt out! Are you kidding?

  11. Harry – obtaining a form (opt-out notice) either by ringing the provider or online isn’t exactly taxing, so is fairly simple.

  12. Harry Katz ~ You’ve rushed feverishly into to print without having read my post properly. I suggested 7½% as a ceiling, not a recommended level of yearly income DrawDown.

    And I’m not with Sesame either.

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