‘Reckless caution’ is what’s ‘wrong’ with pension freedoms, argues Webb

Former Pensions Minister Steve Webb has branded “reckless caution” a fault of pension freedoms, labelling it as the thing that has “gone wrong” with the policy.

During a breakfast seminar hosted by Quantum Advisory, Webb stated: “Ironically, the thing that has gone wrong with pensions freedoms is not buying Lamborghinis, but reckless caution with accessed funds being invested in low returning investments that do not even keep up with inflation.”

The former Pensions Minister, who held the position at the time pension freedoms was introduced, previously said that people could use their pension pots to purchase expensive, luxury items such as Lamborghinis.

Speaking to our sister title, Pensions Age, Webb explained that those who have worked hard and saved hard for a pension, in an era before automatic enrolment, tend to be those who are frugal and cautious and willing to defer gratification. As a result of this, they do not tend to become “wild spendthrifts” during retirement.

He continued by highlighting evidence that suggested pensioners tend to be savers rather than spenders, noting: “A traditional ‘life-cycle’ model would suggest that we save during our working life and then run down our savings in retirement. But many pensioners (apart from the odd world cruise) have modest spending levels, especially as they get older, and can find that they actually have income higher than their regular outgoings.

“In addition, if they plan to bequeath money to their heirs, they may be particularly frugal with their spending. Again, this tends to be militate against the ‘Lamborghini’ issue.”

Furthermore, Webb noted that lump sum withdrawals are taxed quite aggressively, meaning that, even if pensioners did want to purchase a super car, they would be heavily advised not to take out a significant lump sump in a single year.

“Tax is ‘the brake on the Lamborghini’ and encourages people to take their money out more slowly,” he added.

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