Pensions: Early access to cash denied

20th April 2011

Proponents of the change suggested that people would be more likely to save in a pension if the money wasn't locked up until their retirement and could be accessed early to buy things like a house or to help them through financial difficulties.

Opponents focused on a similar area. They said locking up the money was the whole point of pensions because the money was meant to be for retirement, hence the relatively generous tax treatment. This view has prevailed.

Here is the Telegraph report.

The paper reports Treasury Financial Secretary Mark Hoban's view 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".

The Government was also concerned that some providers had warned that allowing early access could also lead to higher charges for customers as providing pensions became less cost effective for them.

The decision received backing from the National Association of Pension Funds which represents big corporate pensions and from fund manager and distributor Fidelity.

Advocates which included Scottish Insurer Standard Life had argued that a merger of the Individual Savings Account and the pension regime could boost pensions savings.

The model was thought to borrow from the US system, the 401k scheme, which allows early access.

When broker Hargreaves Lansdown surveyed its customers it found a 58/42 per cent split in favour of early access, though as it notes here, there is still early access for any money you put in an Isa so splitting your investments between the Isa and a pension may represent the best compromise.

The issue is certainly a big one for financial advisers who split between those who see the move as reckless in that it might diminish the amount of money people are retiring on, and those who think the move would have encouraged more people to start pension saving in the first place. From Citywire:

Adam C vehemently disagrees with the minister.

"So instead of finding a suitable solution that would enable families to pay off crippling debts and in the process deleverage state owned banks, we instead decide to black ball it citing higher charges for customers? Surely the customers who this would apply to are more worried about the charges the banks and lenders are opposing on them for borrowing."

Alan Lazenby opposes. He writes: "The fact that you cannot get to it has helped countless people over the years. The other day I had a postal worker aged 55 who has taken his pension early, Why? 'I thought it would be nice to have a little extra money for the bills' Oh, then you were penalised 30 or 40% of the value of your pension? 'Yes' so you will suffer in retirement? 'Yes' Lord help the financially uneducated."

More on pensions:

Gold plated public sector pensions – time to get real. 

Police and civil servants plan legal challenge against Coalition pension cuts

Pensions: Are drawdown changes as good as they seem


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