The research shows that while allowing pension funds to be withdrawn or borrowed before retirement could lead to an increase in saving in pension funds, income in retirement could be reduced if the option to withdraw or borrow funds is allowed without restrictions, or if people do not increase sufficiently the amount they contribute.
Some pension schemes in the USA and New Zealand allow access to pension funds before age 55 in specified circumstances.
The research, funded by B&CE Benefit Schemes and Legal and General examined the relative advantages and disadvantages of allowing earlier access to pension funds, either for specific purposes such as in cases of financial hardship or funding a house purchase, or more generally in place of other types of saving or borrowing.
Chris Curry, PPI research director, says: “There are many different possible ways of allowing access to savings within pension funds, and some are already in use internationally.
“The 401(k) system of loans is well established in the US, and evidence suggests that this early access increases both the number of people saving in 401(k)s and the amount they save, even though only around 20 per cent of people make use of the early access facility each year.
“If a similar system were introduced in the UK, this could increase aggregate pension savings by around 30 per cent by 2050. However, if people in the UK didn’t increase their contributions, or didn’t repay their loans, then pension funds could be 7 per cent lower.”
John Jory, deputy chief executive of B&CE Benefit Schemes, says “B&CE believes everyone deserves the best retirement they can afford and we will continue to campaign for removal of the barriers that discourage those on low to moderate earnings from achieving this. Our experience suggests that introducing early access options could make a big difference to the numbers of people who save for their retirement.”
Adrian Boulding, wealth policy director of Legal & General, says: “Allowing early access will be another step along the journey of putting the consumer in control of their own financial destiny.”