Government proposals to allow early access to a pension fund is a mistake, warns Mercer, and could follow trends across other systems that indicate this 'leakage' actually undermines efforts to provide adequate retirement resources.

The coalition's Programme for Government states that it will "explore the potential to give people greater flexibility in accessing part of their personal pension fund early", but Mercer's Melbourne Global Pensions Index, which was issued in October 2009, showed that early access was an area that hindered efforts to provide sustainable and adequate provision in Canada, Chile, China, Netherlands and the US.

The report, which was the world's first comparison of public and private retirement systems, examined common and desirable characteristics of retirement income systems in 11 major economies.

"Allowing members' early access to their accumulated savings can have an appealing short-term impact and satisfy a range of needs," argued Bruce Rigby, global retirement strategist at Mercer. "It's also a politically popular policy but there is a sting in the tail. In countries where such leakage occurs, these payments are rarely paid back in full. This can lead to a lack of sufficient funds in retirement and a greater call on government funds."

Rigby said the problem arises because most people underestimate how much they will need for retirement, or how long they will live. "Those capitalising on early access risk being unable to purchase adequate retirement incomes, or running out of money in old age if they don't annuitise."

Meanwhile, Hargreaves Lansdown believes that the new government should cap pension contributions at £50,000 in place of the complex pension tax that is set to come in April 2011.

The cap could be adopted in the emergency budget, says the group, and equates to approximately what the Treasury would collect in pension tax, according to Adrian Boulding, Legal and General's pensions strategy director.

Tom McPhail, head of pensions research, said: "The beast is dead but the tentacles of the firmer Labour government are still reaching for the private pension system in the form of a monstrously complicated pension tax. Capping pension contributions at £50,000 is a much simpler way to achieve the same goal that has the support of the whole pensions industry."

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