Early access to pensions rejected
Government proposals to allow pension savers to dip into their pot before the age of 55 have been rejected.
Mark Hoban, the financial secretary to the Treasury, published the response today after four months of consultation, saying there is "insufficient evidence" that it would act as an incentive to save.
The government believes allowing savers to withdraw cash from their pension pot early would not have a positive effect on their overall contributions. Neither would it provide help for those in financial hardship, it found.
However, the government backed plans to encourage workplace savings schemes, including plans for auto-enrolment into a national pension scheme, called Nest, to be implemented next year.
Hoban comments: "While early access has some merits, there is insufficient evidence to suggest it would act as an incentive to save more into pensions."
He adds: "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."
Industry professionals have welcomed the decision. 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."
Research by AXA Wealth found that only a third of pension savers wanted to access their pot early. Mike Morrison, head of pensions at the firm, says the Treasury's decision therefore "appears to be in line with consumer sentiment".
Darren Philp, director of policy at the National Association of Pension Funds, believes early access to savings would create a "bureaucratic tangle" for pension providers.
"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," he comments.
"Simplifying pensions tax, especially for people with small pension pots, sounds very helpful."
Some countries such as the US and Australia allow pension savers to access their money early. The 401(k) system in the States permits personal loans, as well as hardship withdrawals to cover things like medical expenses and college tuition. The Australia Super scheme allows hardship withdrawals as well as access for disabled people and those with terminal cancer.
This article was written for Money Observer