The Commons Work and Pensions Committee has been told that the new pension freedoms have been used by the over-55s to “fritter substantial amounts of money” from their pension pots on alcohol and gambling.
New freedoms that now allow individuals aged 55 or older to spend their pension pots as they see fit, instead of being forced to buy annuities, were introduced in 2015 by then Chancellor George Osborne.
Many ministers argued at the time that pension savers were getting a raw deal with annuities but it now appears that the freedoms are not being used as wisely as had been hoped.
In one written submission to the Committee, a welfare rights office for Lancashire County Council reported five cases of individuals claiming benefits after exhausting their pension pots in a matter of months.
However, in his own contribution to the Committee’s research, Sir Steve Webb, who was pensions minister at the time the freedoms were brought in, said that before 2015, many pension savers with modest pension pots were getting poor outcomes because they were effectively “forced” to buy annuities, often without shopping around and getting the best deal.
He added that there is “little evidence of reckless spending”, although he conceded that there were “legitimate concerns” about the extent to which people were taking advice or guidance before exercising their freedoms.
Meanwhile, another former pensions minister Baroness Ros Altmann said that the 2015 reforms were a “major improvement” on the old system but warned that there were “notable gaps in the market”, which were hampering consumer outcomes.
The enquiry into pension freedoms is also due to consider evidence on how the changes have affected people on final-salary pensions.