Labour members of the Work and Pensions select committee have raised fears that pension reforms in the Budget could lead to an increase in misselling.
In March, Chancellor George Osborne announced that from April 2015 those over the age of 55 will be able to take their entire pension pot as cash. The 25 per cent tax-free lump sum will remain with any further money taken taxed at the saver’s marginal rate.
This morning, pensions minister Steve Webb told the committee the reforms were about giving people the freedom to manage their own money. However, two Labour MPs said it could lead to missold financial products.
Labour MP for Edinburgh East Sheila Gilmore said: “The last time I remember a Government enthusing about freedom for people in pensions was in the 1980s. One result was a huge amount of pensions misselling. It was also one of the contributing factors towards the position that by the beginning of this century there was increasing concern about people not having adequate pensions cover.”
Labour MP for Erith and Thamesmead Teresa Pearce said if the rules had been in place in the past many people who had endowment mortgages and were unaware of the lump sump required at the end of the policy would have used their pension pot to pay it off.
“They would have been left with nothing. We have to be very careful about decisions people have make that they then have to live with forever,” she said.
Webb said that the guidance guarantee which was also included in the Budget would help guard against misselling.
He said: “We haven’t, as perhaps happened in the 80s, simply said here is a new freedom, now we will let the men in shiny suits sell you something. We have said we will give you a legal right to guidance from someone who isn’t trying to sell you something to talk you through your options.”