Mark Hoban, Financial Secretary to the Treasury, today published the Government’s response to the call for evidence on early access to pension savings.
The Government is committed to improving flexibility over savings, to encourage individuals to either start saving or save more. Following consideration of the responses received, the Government has concluded that early access to pension savings should not be considered at the present time on the basis that:
- 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; and
- 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.
However, responses to the call for evidence showed support for the feeder fund model and the Government 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. In addition, the Government will explore reform to trivial commutation rules to improve flexibility for those with very small levels of savings in personal pension schemes. This will benefit both individuals and pension providers.
The Financial Secretary said:
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.
The Government will announce further details on the reform to trivial commutation rules for small personal pension pots in the autumn.
Notes for Editors
Over 100 responses were received, including from over 60 organisations representing major pension providers and schemes, consumer bodies, think tanks and other financial service providers.
The summary of responses to the call for evidence on early access to pension savings is available at: http://www.hm-treasury.gov.uk/consult_early_access_pension_savings.htm
Currently, individuals can only access savings in a registered pension scheme from age 55 at the earliest (except in cases of serious ill-health or other limited circumstances.)
The response period opened on 13 December 2010 and closed on the 25 February 2011.
The Department for Work and Pensions estimate that around 7 million working age people are currently under-saving for retirement.
The current small pot trivial commutation rule allows pension funds of less than £2,000 in an occupational pension scheme to be paid out as a lump sum (subject to further conditions).
Feeder funds are 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.
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