A former Pensions Minister, Steve Webb, who served at the time the pension freedoms were introduced, has said that the thing that has “gone wrong” with the policy is “reckless caution” once savers have accessed their pots.

Speaking at a breakfast seminar hosted by Quantum Advisory, Webb, who once said that people could use their pension pots to by a Lamborghini, 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”

Expanding on this point to 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 people who are frugal and cautious and willing to defer gratification, and therefore don’t tend to become “wild spendthrifts” in retirement.

“There’s also research evidence that, on the whole, pensioners tend to be savers rather than spenders. 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,” he noted.

He also highlighted the fact that lump sum withdrawals are taxed quite aggressively, which means that even if you did want a sports car you would be very ill advised to take out a huge lump in a single year.

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

Many of Webb’s concerns have also been observed by the Financial Conduct Authority in its Retirement Outcomes Review. In particular it is concerned by people who access their tax-free cash, don’t trust the pensions industry, and so take 100 per cent out and then put the remaining in a cash ISA. It is also concerned by people who do not shop around for drawdown products and end up with their in-house provider.

As a result of this, it has proposed initiatives such as drawdown pathways, which it described as a “significant intervention” that will help consumers who enter drawdown to make investment decisions that meet their needs in retirement.

It hopes that by introducing the pathways, the overarching harm identified in its joint pensions strategy with The Pensions Regulator, will be addressed – that people don’t have adequate income, or the income they expected in retirement.

As part of the proposals, drawdown providers must give consumers entering a drawdown product that haven’t been advised, four options for how they might want to use their drawdown pot.

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