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The Work and Pensions Committee’s pensions inquiry
13 November 2020

The Work and Pensions Committee’s pensions inquiry

The pensions freedoms were introduced five years ago. They relaxed rules on how pensions can be taken, and gave those in later life new choices on what to do with their savings. With new freedoms, however, have come new challenges for consumers and for the industry. Savers who left to navigate a complex market have sometimes paid a very high price.

In the summer, the cross-party House of Commons Work and Pensions Committee launched a three strand inquiry to examine the effects of the 2015 shake-up, and how it is working for savers.

Pensions scams The first and perhaps most pressing strand is examining the devastating impact of pensions scams. How can people who have worked hard for a comfortable retirement be protected from fraud?

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) say that 180 people reported being a victim of a pension scam to Action Fraud in 2018, losing on average £82,000 each. In August, the FCA said it had received reports of scams totalling £31 million over the previous three years.

The problem is likely to be far bigger than official figures suggest. Only a minority of pension scams are ever reported. Research by the Pension Scams Industry Group estimated that between 0.5% and 12% of all pensions transfers are scams. If the true figure is 5%, scams will have added up to £10 bn over the last five years.

Scams come in many forms: false promises of early tax-free access; unrealistic offers of high returns on overseas investments; ‘free advice’ to con savers. The coronavirus pandemic has provided an added opportunity for tricksters to prey on people looking to use their pension savings for support.

Our inquiry will examine whether the numerous regulatory bodies work properly together. We have heard examples of regulators being slow to act on warning signs. The Pension Scams Industry Group has described Action Fraud as “not currently fit for purpose”. The regulators will have a chance later in our inquiry to tell their side of the story.

We are also keen to look at the industry’s role in preventing scams. This month we took evidence from investment firms and asset managers, as well as organisations representing trustees.

Our inquiry will run at least until the end of this year. Our recommendations to the Government will be published early in 2021. We have, however, an early opportunity in the Pensions Schemes Bill, currently making its way through Parliament.

With cross-party support from members of the Work and Pensions Committee, I plan to table an amendment to strengthen protection for savers by giving pension scheme trustees the ability to refuse or pause transfers when scam fears have been identified. The Pensions Scams Industry Group believe this will be ‘pivotal’ in combating the problem. Pensions Minister, Guy Opperman, has engaged very constructively with us on this.

Accessing pension savings

Good quality and timely information is key for both savers and those accessing their pension pots. Availability of guidance and advice will be the focus of the second part of our inquiry.

For five years, people with defined contribution pensions have been free to make withdrawals subject to their marginal rate of income tax. Our predecessor Committee in 2018 found little evidence that savers ‘were frivolously squandering their life savings’, as some had feared. The coalition Government set up Pension Wise to guide people through the options. For those who use it, Pension Wise has largely been a success. But too many are not taking it up.

The problem of proliferating small pension pots fit neatly into the Committee’s work in this area. The combination of lots of pots— generated when people move jobs— and the flat fee charging structure can make saving very expensive, and even erode small pots entirely. I wrote an open letter to the industry about this issue over the summer, and I welcome the Working Group on it, recently set up by the Minister. I would encourage the pensions industry to play an active part in that work.

Saving for later life

The last part of our inquiry, likely towards the end of next year, will look at whether households have enough savings for retirement, and barriers to building up the savings that they need.

We will examine the Government’s approach to automatic enrolment, three years after the Department for Work and Pensions set out to increase the amount saved through it.

Measures which Ministers hoped to implement by the middle of the decade included lowering the age for automatic enrolment from 22 to 18 and removing the lower earnings limit so that contributions are calculated from the first pound of earnings. Currently only those earning more than £10,000 a year are auto-enrolled, and only for their earnings over £6,240.

We already have a gender pension gap, much wider than the gender pay gap. A greater proportion of low earners are women, and excluding them from auto-enrolment exacerbates the problem. The selfemployed, and the growing number of people who make their living in the gig economy, are missed by auto-enrolment.

As we emerge after the pandemic into a new financial landscape for many, I hope the Committee, working with the industry and others, can play its part in protecting savers from scams, and ensuring everyone has the chance to plan for a secure future.


This article was featured in Pensions Aspects magazine November/December edition.

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Last update: 27 January 2021

Rt Hon Stephen Timms MP
Rt Hon Stephen Timms MP
Work and Pensions Select Committee

Assistant Pensions Investment Consultant - Berkshire

Salary: £31500 - £37000 pa

Location: Berkshire

Senior Pensions Governance and Secretariat Consultant

Salary: £70000 - £90000 pa

Location: Hampshire

Senior Pensions Analyst

Salary: £55000 - £75000 pa

Location: London

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