The Pensions Management Institute and Schroders are calling for pension savers to be able to access funds early to purchase a first property.
This recommendation is a key part of the Lifetime Savings Initiative (LSI) — a project set up 18 months ago to explore how to improve financial resilience in the UK.
The LSI is calling for the government to extend auto-enrolment and to make it more flexible, allowing withdrawals for first house purchase and when a member experiences more serious financial difficulties.
Its recommendations have been broadly supported by many in the industry, including other pension providers and consultants.
The LSI has published its plan after two separate research publications and in-person summits with a range of industry leading stakeholders. It is is calling for the creation of a National Short-Term Savings Plan (NSSP), to build ‘rainy day’ savings, alongside a new National Lifetime Savings Plan (NLSP), which would extend the auto-enrolment framework.
The LSI wants savers to be able to contribute to both through their workplace, with deductions taken from net play.
These proposals suggest that the new National Lifetime Savings Plan offers more flexibility around withdrawals to incentivise employees to save even more. This includes for home purchase and when people get into serious financial difficulties. However, in order to preserve longer-term savings it is recommending that withdrawals should only be allowed on retirement savings from contributions in excess of the value of the statutory minimum – currently 8 per cent of qualifying earnings. It says this should encourage people to save more into these plans.
Schroders and the PMI says that this could identify three of the most pressing pressing challenges affecting people’s finances:
- The difficulty of building up a ‘rainy day’ savings buffer resulting in generally poor financial resilience
- The increasing challenge of owning your first home
- Inadequate long-term savings for retirement
Schroders Solutions executive chairman James Barham says: “Pension saving needs to change and it is in this context that we welcome the UK Government’s wide-ranging pensions review.
“But it is also becoming clearer that for many people, looking after themselves and their loved ones through their working life, and into retirement, is about much more than pensions.
“Even when you take pensions freedoms into account, the UK’s long-term savings system is unusually inflexible.
We think this provides an excellent opportunity to develop a model that catapults us to a framework that is right for the UK and leads the world as a model of best practice.
“We look forward to working with Government departments, regulators and the industry in moving this forward, to put the plan in place, to make a real difference to everyday people, society and the UK economy.”
PMI chair Ruston Smith says: “The majority of the money that most people rely on to make ends meet in retirement is from their non-retirement savings. That’s why it is so important to think more holistically about lifetime savings leading up to and in retirement.
“Building short term financial resilience through a simple, accessible and trusted ‘rainy day’ savings fund, with the ability to allow more people to buy their first home, or get their finances back on track, whilst also contributing to long term savings for retirement is at the heart of this proposal – and strengthens financial resilience.
“All these measures contribute to an individual’s lifetime savings which have become so critical in retirement. This proposal accelerates and evolves the use of the UK’s automatic enrolment framework to meet the needs of modern society whilst also addressing the Lifetime Savings challenge.”
Steve Webb, partner at LCP and a former Pensions Minister adds:“The start of a new government is the perfect time to look at the big picture when it comes to pensions and savings. Individuals need a mix of short-term and long-term savings, including savings vehicles which will help with house purchase.
“It is vital that the government’s pensions review looks broadly across the savings landscape and looks at ideas such as those generated by the Lifetime Savings Initiative. The goal must be savings policy framed around the changing needs of individuals over their lifetimes, rather than purely about existing individual financial products.”
Smart Pension senior director of strategic delivery Eve Read says the firm was a “strong advocate” of approaches to make AE pensions “more flexible and relevant for savers”. Read adds that the proposals put forward “could go a long way to solving the retirement saving problem for the majority of savers in the UK.”
She adds: “Smart fully supports this valuable initiative run by Schroders and the PMI, considering some extremely important challenges facing pension savers and the pensions industry at large.
“As a provider and contributor to the LSI’s research Smart Pension is keen to address the three crucial ‘pinch points’ highlighted in the report and explore how we can help to facilitate improved saving habits and ensure a more secure retirement income for the UK population.”
Wayhome CEO and co-founder Nigel Purves adds: “This is an important initiative and we support the general thrust of the LSI’s recommendations. When it comes to people’s home lives and their finances we can’t treat things in isolation, so it’s great to see some bold forward thinking that is considering the whole picture rather tackling issues in a piecemeal way.
“People have a need for both housing and pensions and, for most people, they are likely to be their two biggest assets. Joined up thinking that seeks to make pensions and housing better work together for people has the potential to create a ‘win-win’ and is a positive step forward. With this we can help people get on the housing ladder and also save more for their future retirement at the same time.”
The creation of the LSI included engagement with a broad range of industry stakeholders spanning both the savings and pensions sectors. This included retailers, debt charities, financial education charities, unions, insurers, banks, platforms, fintechs and consolidators. It also reflected extensive research in the pensions and savings models of other countries worldwide.