Gov’t leaves door open for early access to pensions
The government has concluded that early access to pensions should not be considered until evidence indicates it could benefit consumers, stating that there is only “limited evidence” that early access could boost overall pension contributions.
The Work and Pensions Committee argued in its eighth report on automatic enrolment in workplace pensions and the National Employment Savings Trust, that retirement saving through auto-enrolment may be even more attractive to individuals if it offered additional financial incentives or flexibilities.
It asked the government to consider the advantages and disadvantages, including the legal implications, of allowing individuals to withdraw pension savings to buy a first home.
The New Zealand experience may offer evidence on the extent to which savers’ behaviour has been affected by this aspect of the KiwiSaver scheme, a form of workplace auto-enrolment, the committee said.
In the government’s reponse to its report, published today (25 May), it said that there is “limited evidence” that early access would provide significant help to individuals facing financial hardship.
It said: “There was also a broad consensus that the extensive private pension reforms already planned, most notably the introduction of automatic enrolment, should be implemented before the government considers further reform.
“However, the government confirmed that, once automatic enrolment had been fully phased in, it would carry out research into the reasons why some people decide to opt out. If this research reveals evidence that access to pension savings is a significant factor, the government may decide to revisit the issue of early access to pensions.”
In the committee’s report, it argued that the government must set out its detailed plans for state pension reform as a “matter of urgency”.
It its response, the government agrees that the existing state pension system needs to be simplified, admitting that it is “complex” and most people do not know with certainty how much pension they will receive at retirement or the extent to which their income will be means tested.
The government said it will publish details of its proposals for state pension reform in a White Paper in spring. However, final decisions on the detailed implementation of the policy will not be taken until the next Spending Review. The government proposes to introduce a bill “as soon as” a legislative slot becomes available.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “The government have left the door open for early access to pensions, stating that if a case can be made for the KiwiSaver scheme, they may come back to it.
“There are interested parties in the pension world who are keen to push that issue.”