In the run-up to pension freedoms people seemed to be speaking about pensions in a different way. There was new excitement over the removal of the need to buy an annuity (even though this had been the case for some time already).
There were the inevitable references to Lamborghinis following Steve Webb’s (unfortunate?) allusion, and specific calls to remind people that the pension freedoms were not a deadline but the start of a new regime. As always, rhetoric around careful consideration of any pension fund withdrawals was hammered home.

So some two and a half years later we have had the FCA Retirement Outcomes Review (interim report) and, more recently, the announcement of an investigation into pension freedoms by the Work and Pension Select Committee (a House of Commons select committee that shadows the Department for Work and Pensions)It is worth noting that the pension freedoms policy was Treasury policy. As the current DWP Secretary of State was a Treasury minister at the time, will there be change?

Some of the issues to be addressed by the new review include:

• What are people doing with their pension pots and are those decisions consistent with their objectives? Is there monitoring of the choices being made?
• Are people taking advice and guidance, if so, are they listening?
• Will the pensions dashboard help?
• Is Pension Wise working? If not, what can be done?
• Are there gaps in the advice and guidance market?
• Is automated advice and guidance filling gaps?
• Is there evidence of competition? Are people switching? Is there still an adequate annuity market?
• Are there adequate steps in place to prevent scams and miss-selling?
• Are the freedom and choice reforms part of a coherent retirement saving strategy?

These are all good questions but in the end, if you give people extra flexibility with their pension funds, it is difficult to complain if the result is that they use those extra flexibilities for what some regard as the ‘wrong’ reasons.

To borrow a phrase from the Retirement Outcomes Review: “Pension freedoms have switched the mental accounting of the pension pot from a future retirement income choice to a current consumption choice.” It is this form of behaviour that we need to address.

For me the elephant in the room is ‘longevity’. Whilst the impact might not take effect for some years, it is evident that many people underestimate the length of time they will live and subsequently run the risk of running out of money. I welcome the review but whatever the findings it will be very difficult for a Government of any colour to reverse the freedoms.

Let me leave you with a quotation from a somewhat strange source; the report and accounts of a company that lays domestic driveways:

“... the new rules regarding pension fund release continue to support growth...The average individual cash withdrawal from pension funds is around £9,000. The average cost of an installed driveway or patio is between £5,000 and £6,000 and this remains a popular use of pensions release funds.”


Mike Morrison is head of platform technical, AJ Bell