Fears were raised last night that some retirees are splurging their pensions on alcohol and gambling binges before falling back on the state for help.
MPs were told that there is evidence that some people are exploiting new rules that allow the over-55s to cash in their entire pensions.
A written submission to the Commons Work and Pensions Committee claims that five individuals have exhausted their pots in a matter of months – and then claimed benefits.
Five pensioners managed to spend their entire life’s savings within months of retiring, with one engineer blowing £120,000 on a car, gambling and drink (file image)
Pamela Hewitt, a welfare rights officer for Lancashire County Council, described one case of a male client who had been a well-paid engineer before being made redundant.
The man sought help from the local council after his benefits were stopped.
He claimed he did not have any money, but it emerged that he had released £120,000 from his pension pot while claiming benefits.
Mrs Hewitt said he had spent ‘every penny on gambling, a car and alcohol’.
His benefits were reinstated after an appeal, although they can be taken away again if it is found he deliberately spent his cash in an attempt to get help from the government.
In her submission, Ms Hewitt said: ‘I strongly believe that although he did not get rid of his money in order to claim benefit, he was aware that if he spent all of the money there was a safety net available to him.’
Two years ago the government introduced sweeping reforms to the pension system that allow the over-55s to spend their pension pots as they pleased.
Until the so-called pension freedoms in 2015, most savers had to use their fund to buy an annuity, which provided a guaranteed income for life.
While the reforms were aimed at giving retirees more choice over how they use their money, opening up benefits usually reserved for the super-rich (file image)
At the time, savers were told that they were free to use their money as they pleased.
Then-pensions minister Sir Steve Webb even said he was ‘relaxed’ if pensioners splashed out on Lamborghini sports cars.
Experts say most of the one million people who have accessed their pots over the past two years have taken out small sums.
According the Financial Conduct Authority, around two-thirds of the pots cashed in have been worth less than £30,000.
An FCA report in July said much of this money was being spent wisely. In many cases, savers were putting the money into other savings accounts, such as Isas.
In his submission to the Work and Pensions Committee Sir Steve Webb said: ‘The pension freedoms have given pension choices previously enjoyed only by the relatively wealthy to a much wider range of people.’
Mrs Hewitt said: ‘I felt this case study showed an example of unintended consequences of pension freedom.’