Calls for early access to pension pots
Allowing early access to pension funds would encourage more people to save for their retirement, according to a new report.
The Pensions Policy Institute (PPI) says people are deterred from saving into a pension because they are unable to access their cash in times of financial hardship or an emergency.
Its research suggests that adopting a US-style pension system in the UK, where people can make withdrawals each year from their retirement pots, could boost savings by 30% by 2050.
However, it acknowledge that allowing such early access could result in smaller retirement incomes if people don’t increase the amount they contribute or pay back the money they withdraw.
Chris Curry, director of research at the PPI, says: “There are many different possible ways of allowing access to savings within pension funds, and some are already in use internationally.
"If similar systems were introduced in the UK, this could increase aggregate pension savings by around 30% 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% lower."
He adds that in the US only around 20% of people make use of the early access facility on their pensions.
Some pension providers agree that early access could savings.
Adrian Boulding, wealth policy director at Legal & General, says: "Allowing early access will be another step along the journey of putting the consumer in control of their own financial destiny."
But Laith Khalaf, pensions analyst at Hargreaves Lansdown, warns that allowing people early access to pension pots is fraught with danger.
“While anything that makes pensions more attractive to people should be welcomed, this is a real no-no for the government,” he explains. “The last thing it wants is for people to use their pensions early to pay for things like holidays only to fall back on the state when they actually retire.”
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Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.