Responding to the Treasury’s consultation on early access, the Investment Management Association says rather than increase participation and contribution levels, early access could result in unintended consequences such as greater complexity and worse outcomes for individuals in retirement.
The NAPF says letting people dip into their pension before they retire could increase dependency on state benefits and create a bureaucratic nightmare for pension providers.
But the Association of Consulting Actuaries says it supports the proposals, arguing meaningful help could be provided to scheme members with limited effort or cost. Without such a change, younger people paying off student debts or saving for homeloans will not connect with pensions, it argues.
It has attacked the view that people will necessarily end up with less in retirement because in many situations they would use the money withdrawn to put their finances on a more stable footing.
The ACA points out that at present retirees can take retirement tax-free cash without any constraints as to how it is used or misused. Under a sensible early access model the use to which sums taken early could be put would be more “controlled” , it argues, meaning the risk of rash expenditure would be reduced rather than increased.
It argues the qualifying reasons for early access should be confined to items such as house purchase, mortgage or rent arrears or a child’s university fees. If this proves too complex, access to the accrued but undrawn lump sum could be given on a 5-year basis, it says.
The ACA adds that it sees the issue of early access as less important than other areas of flexibility in pension legislation, such as an ability to offer risk-sharing pension schemes.
Fidelity has suggested the government should opt to link Isas and retirement savings, rather than allow early access. It argues this would encourage people to save without complicating the pensions landscape or putting people’s retirement security at risk.
Fidelity suggests forming a single £60,000 annual tax-advantaged savings limit for pension and Isa. Up to £30,000 per annum could be placed in the Isa part of the savings vehicle, and the remainder, up to the £60,000 limit, in the pension pot. People could then be given the choice of when to lock their Isa savings into their retirement pot, and gain the benefit of an uplift through tax relief.
ACA chairman, Stuart Southall says: “In our view it makes little sense to dismiss the idea of early access on the basis of it either being available already, for example, through Isas or because it is not possible to definitively prove that early access will increase pension saving. Few things are properly understood about pension saving, but the evidence suggests that even those in their early 20s understand – and most are frankly entirely switched off by the thought – that pension saving means locking funds away for 30 years or more.
“If you cannot see beyond the end of your student loan repayments, or other expected cost obligations, are you seriously going to commit your limited funds to such a vehicle?”
IMA head of research Jonathan Lipkin says: “Providing an early access facility has some intuitive appeal, but there is insufficient evidence that early access will result either in higher participation or contribution levels. At the same time, greater administrative complexity and costs will inevitably arise from such a step.
“The introduction of automatic enrolment in 2012 offers a significant opportunity to repair the brand damage to pensions in recent years. Once the impact of automatic enrolment becomes clear, it will be easier to assess how further reform can best be designed and implemented.”
Tom Stevenson, investment director at Fidelity International, says: “With the average first-time buyer aged 37 and the average house deposit £31,000, savers could be most tempted to raid their pensions in the early years of saving if the Government gives them the opportunity to do so. These savers may think they have plenty of time to make up the money they have ‘borrowed’ from their pensions, but because of the effect of compounding, it would be extremely hard for most savers to make up that ground.”
Mike Morrison, head of pensions development, Axa Wealth says: “In most cases it would seem that early access would not ease hardship – for those most likely to make a claim, their pension fund is unlikely to be of sufficient amount to assist. The average pension pot is something just over £25,000, which might yield an income in retirement of about £1,200 pa and early access – without a commitment to rebuild a pension pot – would severely impact a person’s income in retirement, and risk that person having to fall back on the state for support.”
