The Government has ruled out offering early access to pension savings, arguing 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 Treasury also said it had decided not to proceed with the idea because it felt 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.
But it said responses to the call for evidence showed support for the feeder fund model, products that link an Isa to a pension, for example, by having a threshold above which liquid savings are automatically rolled over into the pension part of a product. The Treasury says it will engage with industry to further develop innovative workplace savings models that will encourage saving for both medium term needs and for additional retirement income.
Reform of trivial commutation rules will be explored to improve flexibility for those with very small levels of savings in personal pension schemes. The Government will announce further details on the reform to trivial commutation rules for small personal pension pots in the autumn.
Mark Hoban, financial secretary to the Treasury says: “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.”
John Taylor, market director, corporate pensions at Scottish Widows says: “This announcement allows the industry to focus on the successful implementation of the substantial pensions reform agenda while leaving the door open for The Government to review early access in years to come.
“In the meantime, The Government has recognised that innovative workplace savings vehicles can allow employees to save for the long term while retaining a degree of access. This is likely to translate into more demand for broader workplace solutions.”
Laith Khalaf, pensions analyst at Hargreaves Lansdown says: “Savers need pensions to be simple; allowing early access would create complexity and could do more harm than good. Using pensions and Isas investors already have the tools to simultaneously save for retirement and for a rainy day in a tax efficient manner.
“The government says it is keen to explore how new savings models such as workplace Isas could be further facilitated within the existing savings framework. The fact the government thinks this savings model is a good one reinforces the idea that the workplace savings market will polarise, with Nest at one end and corporate wraps at the other.”
Darren Philp director of policy at the NAPF, says: “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 tangle.
“The Government has concluded that there is a lack of evidence that early access would increase pension saving. Our view is that it’s 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 wasn’t a solution, we’re 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.”