Way to go!
UK retirees using ‘pension freedoms’ for alcohol and gambling - MPs receive evidence some pensioners are using new liberties to squander savings
Some British retirees are using their “pension freedoms” to fund alcohol and gambling binges before falling back on the government for help, MPs have been told.
Changes to pension rules introduced in 2015 by then chancellor George Osborne gave people over the age of 55 the liberty to spend their pension savings as they wished. Before the changes, retirees were restricted on how they spent their pension cash, with most required to buy a guaranteed annual income.
Ministers argued at the time that many pension savers were getting poor outcomes because they were effectively “forced” to buy certain annuities. But now there is evidence that rather than wisely managing their funds, some pensioners are using their freedoms to fritter substantial amounts of money on alcohol and gambling.
In a written submission to the Commons work and pensions committee, which is conducting an inquiry into pensions freedoms, a welfare rights officer for Lancashire county council reported five cases of individuals claiming benefits after exhausting their pension pots in a matter of months.
In her submission, Pamela Hewitt, who worked as a welfare benefit officer for a large social housing landlord but was giving evidence in a personal capacity, described one case of a male client who held a lucrative professional job before being made redundant. The client sought help after his housing and tax benefits were cut off.
His benefits were stopped because of a breach of capital rules, but he said he had no capital at all and showed bank statements to that effect, Mrs Hewitt said.
But it was later revealed that just six months before making his claim, the man had released £120,000 from his pension pot and “spent every penny on gambling, a car and alcohol”.
“I think he chose to spend his money, not to take advantage of the benefit system, but because he didn’t care what happened to him, had addiction issues and knew there would eventually be a safety net,” Mrs Hewitt said in her submission.
“[The man’s] pension pot had originally been worth nearly a quarter of a million pounds, he released all that he could to himself, even against the advice of his accountant,” Mrs Hewitt added.
Upon appeal, the man’s benefits were restored — even though benefits can be withdrawn if officials deem assets or money were deliberately run down to secure state help.
Mrs Hewitt told MPs she had dealt with another four similar cases in “all of which the claimants ended up continuing on benefits after an appeal as they had not spent the money with the intention of taking advantage of the system”.
“I felt this case study showed an example of unintended consequences of pension freedom,” she said. “If [the man] had not been able to access his pension pot, I can only assume that the years leading up to retirement would have been more stable.”
Mrs Hewitt’s evidence comes three years after David Cameron’s coalition government came under sharp criticism for radically loosening the rules on how pension cash could be spent.
Steve Webb, then pensions minister, said at the time that he was “relaxed” about how people spent their retirement cash, saying: “[If they] do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.”
In written evidence submitted to the work and pensions committee this month, Sir Steve, now director of policy at Royal London, the insurer, continued to defend the policy, saying that before pension freedoms, “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.
“The pension freedoms have given pension choices previously enjoyed only by the relatively wealth to a much wider range of people,” he said.
One 60-year-old, whose evidence was published but who was unnamed, said he used his entire £46,000 pension pot to buy a shepherd’s hut, which he rented out on Airbnb. He was now making a return of £6,000 a year on the rental, in comparison to the £1,000 a year he was offered for an annuity and said it was the “best move ever”.
“This is the only descent [sic] thing George Osborne ever did,” he said.
Research published by the Financial Conduct Authority in July found 1m pension pots had been accessed since the changes were introduced, with nearly three-quarters of those by savers under the age of 65, most of whom were taking lump sums. Two-thirds of retirees who fully withdrew their pension savings had either saved or invested the money, or used the funds to pay off debts.
“There is little evidence of reckless spending,” Sir Steve said in his evidence. He added, however, that there were “legitimate” concerns about the extent to which people were taking advice or guidance before exercising these freedoms, despite the government launching a “Pension Wise” a free guidance service to help over-50s make sense of their options.
In her own submission to the committee, Ros Altmann, another former pensions minister, said the 2015 reforms were a “major improvement” on the old system, but there were a “notable gaps in the market, hampering consumer outcomes”.
The wide-ranging parliamentary inquiry into pension freedoms is also due to consider evidence on how the changes have affected people on final-salary pensions.
One unnamed 52-year-old who made a submission to the inquiry was very clear about how he thought MPs could improve pensions. “Please, Please, Please, for god’s sake can MPs leave pensions alone for a while and give the rest of us a chance,” he said.
From the FT"We are living in very strange times, and they are likely to get a lot stranger before we bottom out"
Dr. Hunter S Thompson
