Hundreds of thousands of people are losing a huge portion of their savings every year because the pensions market is broken. After working hard throughout their lives, too many savers are missing out on the best deal when they try to turn their pension pots into an income for their retirement. The cost? An astonishing £1bn lost every year.
Labour wants a better deal for savers and we support reform and greater flexibility for people in retirement. We believe it's right that people who save are given greater choice in using their carefully saved pension money.
But we want the Government to go further to help people turn more of their hard-earned savings into a decent income in retirement. So we've set three tests for pension reforms.
First, the advice test. We want the Government to make sure there is independent support for people to maximise their retirement income. The Treasury must publish a fully costed implementation plan for the delivery of high-quality advice, including steps to combat the risk of mis-selling. Second, the fairness test. The Government's proposals must ensure that those on middle and low incomes can get the private pension products that give them the certainty in retirement they deserve. The billions spent on pensions tax relief must not benefit only the richest. Third, the cost test. It is vital that the Government ensures its reforms do not result in extra costs to the state, either through higher social care bills or pensioners falling back on means-tested benefits such as housing benefit.
Savers need action from the Government to protect them from "rip-off" pension charges. Currently there are no limits on the charges that pension providers can impose. They may be buried in the small print, but for most people they are hidden and unknown. The Government's own numbers show that some savers lose an astonishing £230,000 from the value of their pension when a 1.5 per cent fee is charged over their working life.
Last year, David Cameron promised to introduce a cap on those fees. The Government then pledged that a cap would be introduced in April 2014. But weeks later that promise was broken.
Ministers now say they will make an announcement on the pension cap next week. David Cameron must make good on his promise. The problem with the Budget was that there was nothing for people who can't afford to save. What we need is Labour's cost-of-living plan, including freezing energy prices until 2017, expanding free childcare to make work pay and a lower 10p starting rate of tax to help 24 million people on middle and low incomes.
If the Prime Minister breaks his promise savers will lose thousands of pounds in retirement, deepening the cost-of-living crisis. People who have worked hard and put money aside must not be betrayed.
Rachel Reevesthe Shadow Work and Pensions Secretary