Treasury will not consider early access to pension savings

Mark Hoban, financial secretary to the Treasury, has published the government’s response to the call for evidence on early access to pension savings, concluding that it will not be considered at the present time.

The reasons for this include that there is limited evidence that allowing early access would have a positive effect on overall pension contribution levels, or provide significant help to individuals facing financial hardship; and 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.

Responses to the call for evidence showed support for the feeder fund model and the government intends to engage with industry to further develop innovative 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. This will benefit both individuals and pension providers.

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

Hoban said: “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. 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.”

The National Association of Pension Funds (NAPF) has backed the government’s announcement. Darren Philp, director of policy at the NAPF, said: “Letting people dip into their pensions early would not have increased their retirement income. Instead it would have risked greater dependency on the state pension, and left pension providers in a bureaucratic tangle.

“The government has concluded that there is a lack of evidence that early access would increase pension saving. Our view is that it is sensible to put the option to one side. 

“The 2012 auto-enrolment reforms need to be implemented and bedded in before further major changes to the pensions landscape are considered.

“The UK is facing a worsening crisis when it comes to saving enough for its retirement. Although early access was not a solution, we are pleased that the government wants to explore other ideas to make pensions more flexible. 

“Simplifying pensions tax, especially for people with small pension pots, sounds very helpful.”

Pensions provider Bluefin expressed disappointment that the issue has been delayed. Robin Hames, head of technical at Bluefin, said: “While we were not convinced by the initial discussions on how early access might work, it is a shame that the Treasury has dropped the topic so quickly.

“While it is claimed he that there is too little evidence that early access would improve retirement outcomes, no evidence is offered to the contrary. 

“The fact is, under automatic enrolment many pension savers on lower incomes face the accrual of pension when they may be better off keeping their cash for more immediate financial needs.

“They seem to have found a reasonable solution in other countries, such as Australia and New Zealand where auto-enrolment or compulsion is in place and the introduction of hardship clauses would have gone a long way to making the system fairer for these lower earners, while protecting pension pots.”

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