Pension freedom? More like pension serfdom says expert after DWP issues ‘Deprivation of Capital’ benefit rules

27th March 2015

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New rules from the Department for Work and Pensions have been labelled a recipe for pensions serfdom rather than pensions freedom by financial firm Scottish Friendly Society.

The DWP has issued regulations today suggesting that it would assess people’s pension decisions when it comes to assessing their entitlement to benefits.

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 DWP 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.”

Lovatt has also queried just how the DWP will decide which financial decisions should be considered reckless.

“It is unclear how the DWP will identify what will and will not be accepted as depriving yourself of capital and it gives no guidance as to how people will be allowed to spend their pensions. For example, 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?” he asks.

“While I understand and welcome that the Government is trying to protect the taxpayer from having to pay twice to support pensioners who misuse their pension pot, the proposals they are putting forward suggest that they are trying to shut the gate after the horse has already bolted. 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.”

Lovatt raised this very issue with Rt Hon Steve Webb, MP at a My Financial Services Event in December – the video of which can be found here: http://myfs-events.co.uk/myfs-tv/

1 thought on “Pension freedom? More like pension serfdom says expert after DWP issues ‘Deprivation of Capital’ benefit rules”

  1. Jive Bunny says:

    “…but at the same time is reserving the right to decide after the event whether or not an individual used that money wisely.” – and there’s nothing more accurate than the 20/20 vision of hindsight!!

    Oh how the Government digs itself into these holes and then makes them bigger with it’s “solutions” to these holes it originally dug.

    “It is unclear how the DWP will identify what will and will not be
    accepted as depriving yourself of capital and it gives no guidance as to how people will be allowed to spend their pensions”

    As an ex DWP employee I can confirm that will be because at this stage they have no clear idea themselves of what will comprise capital deprivation. They’re playing catch up as usual!!

    “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?”

    Already I see away through, bearing in mind there is no “retirement age” any more they register with the Jobcentre+ as being available for and seeking work and claim income based JSA. The crunch will come in determining which is most financially advantageous to them, JSA or Pension Credit, each has it’s own set of quirky regulations relating to personal circumstances.

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