UK govt says no to early access to pension savings

The UK Treasury has decided that early access to pension savings should not be allowed as there is limited evidence that it would have a positive effect on overall pension contributions.

Mark Hoban, Financial Secretary to the Treasury, confirmed that the extensive private pension reforms already planned, most notably the introduction of automatic enrolment from 2012, should be implemented before the Government considers further reform.

However, he said that responses to the call for evidence showed support for the feeder fund model and the Government will engage with industry to further develop workplace savings models that will encourage saving for both medium term needs and for additional retirement income.

In addition, the Government will explore reform to trivial commutation rules to improve flexibility for those with very small levels of savings in personal pension schemes aimed at benefiting both individuals and pension providers.

‘The Government is committed to encouraging saving and wants to give individuals greater flexibility in saving for retirement. While early access has some merits, there is insufficient evidence to suggest it would act as an incentive to save more into pensions,’ said Hoban.

‘We will work with industry to develop workplace saving to supplement pension savings. In addition, we will explore other ways of making pension tax rules simpler and more flexible, for example by making it easier to deal with small pension pots,’ he added.

The Government will announce further details on the reform to trivial commutation rules for small personal pension pots in the autumn.

Mike Morrison, head of pensions, AXA Wealth, said the decision appears to be in line with what people want. ‘Our recent research found that only a third of consumers wanted to access their pension pot early, with a third saying it would encourage them to increase their current retirement savings.

Consequently, HM Treasury's decision appears to be in line with consumer sentiment,’ he explained.
‘However, there is still an overwhelming need for the industry to educate consumers more and ensure they have a range of savings vehicles in their portfolios that allow them to save for the long-term but also have access to money for emergency situations,’ he added.

Vince Smith-Hughes, head of business development at Prudential, described it as a sensible decision. ‘Our analysis completely supports the Government's understanding that early access would pose a significant risk of undermining savings for retirement nationally, a risk not worth taking at this time,’ he said.

‘In particular, our research showed a clear concern from consumers that allowing early access would have provided too much temptation to convert retirement savings into current expenditure. This undoubtedly would have resulted in the burden on the State increasing in future,’ he added.

However, Ray Chinn, LV= head of pensions, said he believes that the ‘lock in’ associated with saving into a pension can be a considerable barrier. ‘In fact, our own research showed 25% of over 50s would have been encouraged to save more into their pension had early access been an option,’ he explained.

‘We would urge the Government to keep early access on the agenda and revisit the idea as soon as possible, perhaps alongside a more general review of how different elements of savings, e.g. ISAs and pensions, whether workplace led or not, can be made to work together to help improve people's financial situation at retirement,’ he added.