Pension reforms could leave older people at risk, critics warn
The Treasury has dismissed warnings that pensioners could be left at greater risk from 'poor decisions' following the major reforms to retirement savings announced in yesterday's Budget.
Critics have cautioned that giving people the freedom to withdraw their pension savings as a lump sum on retirement could lead many to find themselves without enough money in their later years.
One such warning came from the National Association of Pension Funds (NAPF), which warned that this new freedom will bring a "significant burden of responsibility" on individuals to make the right financial decisions.
These concerns are amplified by increasing life expectancy. "People often underestimate how long they will live and overestimate how long their pot will last," NAPF warned.
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Phil Billingham, from Essex financial planning firm Perceptive Planning, also warns that while some will use their pension pots sensibly, others will have "never seen these sort of numbers before", and may "fall prey to ‘get rich quick’ schemes, usually unregulated and based abroad".
"When the money goes, it's gone, and there is no consumer protection from these schemes," he added.
However, the Chancellor believes that those who have saved regularly all their lives can be "trusted" with more control over their finances.
And Chief Secretary to the Treasury Danny Alexander told BBC2's Newsnight it was "unlikely" that people who had built up a pension pot would squander it.
It would be "to their detriment" if they did, he added, not least because spending retirement savings in a short time would likely mean paying more tax on it.
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To offset the risk of individuals making poor financial decisions, Mr Osborne promised that all people reaching retirement age will be offered "free, impartial, face-to-face advice" before choosing how to receive their pension.
However, this won't necessarily stop people will be no fallback for anyone who does spend their pot too soon. That means the Government cannot guarantee against an increase on people relying on the state to fund their retirement.
Furthermore, there are some concerns at how the provision of advice on such a mass scale can be provided by the time the announced reforms will come into effect (thought to be around a year).
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"Of all the changesannounced in the budget this appears to be the least well formed," says Matthew Phillips, managing director at Broadstone pensions and investments.
"It is not clear currently how this is to be delivered and by whom."
The Treasury says it will be working with the new Financial Conduct Authority as well as independent groups such as Which? and the Citizens Advice Bureau (CAB) to ensure the advice is provided to those who need it.