Watchdog launches review of pension freedoms amid concerns over mis-selling
A major review of new pension freedoms announced by George Osborne last year is to be carried out by the Financial Conduct Authority amid fears of mis-selling.
The city regulator has announced it will look into changes which allow people aged 55 and over to use their pension pot however they wish, including taking a lump sum instead of being forced to buy an annuity.
The policy has led to concerns that pensioners have become a target for mis-selling and scams because they have access to large sums of cash.
The review will also focus on competition and the ability to switch providers in the pensions market. The FCA said: “We will undertake work to ensure that consumers are able to make choices that are in their best interests given their circumstances.”
“There are several risks we need to consider, for example, the risks of mis-selling and poor value for money for consumers, particularly those with small pension pots and the risk that our interventions undermine competition or stifle market development.”
The watchdog will also consult on plans to limit early pension exit charges, amid concerns the penalty prevents some people from accessing their savings.
The announcement came as it emerged that nearly two-thirds of pensioners could get a “nasty surprise” in the coming months as they begin receiving a state pension income lower than the full “flat rate” amount of £155.65 promised by ministers.
An analysis by the Institute for Fiscal Studies (IFS), an independent think tank, has warned that 61 per cent of elderly people will receive a lower state pension income over the next four years than they do currently.
The full new state pension, which comes into force on Wednesday has a single-tier rate of £155.65 a week.
To get the new state pension, men must have been born on or after April 6 1951 and women must have been born on or after April 6 1953.
However, the IFS analysis found that less than one in five people reaching state pension age over the next four years will get this exact amount of £155.65.
It said nearly one in four retirees will get more but the majority will get less.
According to the IFS, the main reason that people will receive a lower state pension is because they have had periods when they have been “contracted out” of the additional state pension – meaning they paid reduced rates of National Insurance contributions in exchange for reduced pension entitlement.
Eight in 10 of those reaching the state pension age over the next four years will have been contracted out at some point during their lives.
“There is a considerable risk of disillusionment as people start claiming pension incomes this year,” the IFS said.
“It would be a shame if such disillusion was to threaten the sustainability of what is on balance a sensible reform”, it added.
Mr Osborne, the Chancellor, has hailed the new state pension and said that it will give people “dignity in retirement”.
The Treasury said that over 75 per cent of women and over 70 per cent of men will gain in the first 15 years of the new State Pension, and that by 2030 over three million women stand to gain an average of £550 extra per year as a result of these changes.
“Today’s reform of the State Pension is the most significant since its inception,”
Mr Osborne said.
“The new system means that at last, people will have certainty in what they can expect from the state in old age – and for many women and the self-employed, it will be more generous.”
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