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DWP creates new capital rule

Webb ‘turning pensions freedom to serfdom’

Steve WebbA Scottish savings firm has criticised the government for turning pensions ‘freedom’ into pensions ‘serfdom’ just weeks before the reforms are introduced.

A new Deprivation of Capital rule means the government can challenge someone’s right to claim state pension support if they spend all their pot and are left out of pocket in retirement.

From April, retirees will get greater control over how they use their pension pot rather than being compelled to buy annuity.

Neil Lovatt, Director at Scottish Friendly, said: “The Government rhetoric about pensions freedom has taken a big hit today.

“The ‘Deprivation of Capital’ rule now being applied to pensions means that if you use pension “freedom” and simply spend your retirement fund, give it away or lose all of your money and end up needing to rely on the state for support, you will only be allowed to do so if the Department for Work and Pensions agrees with your financial decisions.

“In effect, the Government is promoting the right of the individual to have control of their pension, but at the same time is reserving the right to decide after the event whether or not an individual used that money wisely.

“It’s one thing to say that the state shouldn’t tell you how to spend your own money, but quite another to say the state will tell you after you’ve spent the money as to whether or not they approve of the way in which you spent it. This is not so much pension freedom as pensioner serfdom.”

Mr Lovatt, who has raised this issue with Pensions Minister Steve Webb (pictured), said it is unclear how the DWP will identify what it deems as deprivation of capital and has given no guidance on how people will be allowed to use their pensions.

“For instance, is a badly made decision to invest in  buy-to-let property going to be considered a reckless endeavour, or will the Government only apply this rule to those that go out and buy a Lamborghini, which apparently they were previously relaxed about? Where will the line be drawn?”

Mr Lovat said he understands the need to protect the taxpayer from having to pay twice to support pensioners who misuse their pension pot, the proposals suggest they are “trying to shut the gate after the horse has already bolted.”

He says: “The issue needs to be addressed at the front end of the process, not by bureaucrats making judgements on pensioners with the benefit of hindsight.

“What is also not clear is what happens to those people that the DWP deem to be reckless. Without benefits how will they support themselves? Are they simply to be left out in the cold? Who will be protecting these members of our society? We need to address these issues now.”

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