By Matt Ritchie
The Government has now published its response to the call for evidence on early access launched in December last year.
It has elected not to go ahead with early access, preferring to focus on implementing existing reforms before considering further changes. Also, the Government says 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.
Commentators and industry figures have been quick to chime in on the move.
Head of business development at Prudential Vince Smith-Hughes said the financial services company’s analysis “completely supports” the Government’s understanding that early access would pose a significant risk of undermining savings for retirement nationally.
“In particular, our research showed a clear concern from consumers that allowing early access would have provided too much temptation to convert retirement savings into current expenditure. This undoubtedly would have resulted in the burden on the state increasing in future."
Head of pensions at AXA Wealth Mike Morrison said AXA’s recent research found that only a third of consumers wanted to access their pension pot early, with a third saying it would encourage them to increase their current retirement savings.
“Consequently, HM Treasury’s decision appears to be in line with consumer sentiment.
“However, there is still an overwhelming need for the industry to educate consumers more and ensure they have a range of savings vehicles in their portfolios that allow them to save for the long term but also have access to money for emergency situations.”
The National Association of Pension Funds has backed the Government’s move, saying that allowing early access would risk greater dependency on the state pension, and leave pension providers in a bureaucratic tangle.
NAPF director of policy Darren Philp said the Association feels it is sensible to put the option to one side, and 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.”
However, head of pensions at LV= Ray Chinn said a lack of access can be a considerable barrier to saving, and the company’s research suggests 25% of over-50s would be encouraged to save more into their pension if they had the option to access savings earlier.
“We would urge the Government to keep early access on the agenda and revisit the idea as soon as possible - perhaps alongside a more general review of how different elements of savings (e.g. ISAs and pensions - whether workplace led or not) can be made to work together to help improve people's financial situation at retirement,” Chinn said.
Meanwhile, Towers Watson said the decision not to go ahead with early access reflects “several drawbacks” with the idea.
The firm said Treasury is right to judge there is no conclusive evidence that permitting early access would increase savings and improve retirement incomes. Further, “it was never clear” how the Government would have prevented people from reducing their tax bill by putting money in a pension for a year or so before spending it.
Early access may be revisited after 2017, when auto-enrolment of most employees has been fully phased in. In the meantime, Government said it intends to explore how the development of new savings models such as feeder funds and workplace ISAs could be further facilitated within the existing pensions and savings tax framework.
Head of settlement consulting at Towers Watson Mark Duke said: “People who don’t want to lock their money away can already save in other vehicles first and benefit from tax relief if and when they are ready to commit to saving for retirement. This option could certainly be better promoted but it doesn’t require a change in the law. We expect more employers to think about whether they want to make medium-term savings vehicles available through the workplace.”
Bluefin has welcomed Treasury’s decision to simplify the treatment of small pension pots in personal schemes, though expressed disappointment that early access has been “so swiftly ducked”.
Head of technical at Bluefin Robin Hames said though the firm was not convinced by the initial discussions on how early access might work, it is a shame that the Treasury has dropped the topic so quickly.
“While it is claimed that there is too little evidence that early access would improve retirement outcomes, no evidence is offered to the contrary. The fact is, under automatic enrolment many pension savers on lower incomes face the accrual of pension when they may be better off keeping their cash for more immediate financial needs."
Hames cited the New Zealand and Australian systems which include provisions for early access under specific circumstances, saying such a solution could go a long way to making the system fairer for lower earners, while protecting pension pots.
“Instead the Treasury is considering helping higher earners by further considering the combined ISA/personal pension wrapped products. If ISA limits are to be used up first these products are clearly targeting individuals who, according to the Treasury statistics, are saving more each year than the total average savings of over 50% of UK households.
“There is nothing wrong with that but what about the other end of the spectrum? If automatic enrolment is to help lower paid employees it must appear worthwhile to this group,” Hames concluded.