One pensions expert has renewed calls for early pension access in cases where there is financial hardship, however providers have warned this could exacerbate poverty in retirement.
As it currently stands, only in limited circumstances can people access their pension prior to age 55, such as in cases of severe or terminal ill health.
However, David Trenner, technical director at Intelligent Pensions, has called for those who suffer financial hardship to have early pension access.
Speaking to FTAdviser, Mr Trenner said: “People who are ill can get their money but people who are just skint can’t - it is not so good if you need access to your pension and you can’t have any.
“The last government talked about doing early access and they discussed it and decided not to go ahead with it, which I feel was the wrong decision because to me it is all about making pensions attractive.”
Following a consultation, the government concluded in May 2012 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.
Mr Trenner added that if a person is under 30, then their priorities might be different.
“You’ve got so many things that you could spend your money on, you shouldn’t start a pension unless your employers is paying for it. There must be nothing more frustrating to be in the position to buy and you have money tied up in a pension that you can’t use.”
Mr Trenner suggested two different ways of making early access for financial hardship work including taking out a loan against your pension fund, which could be allowed to roll up.
“The loan would end up being something like 50 per cent of the fund and you would have to give reasons - but we are not even doing that on the 55 year olds - anyone can take money to invest in for example, a Ucis.”
He also agreed with a previous suggestion from LV that people could be allowed to access their 25 per cent tax-free cash prior to age 55, however this would then need to be built up again.
However, John Reeve, senior consultant at Premier Pensions, warned that extending the rules which currently apply to those who are ill or disabled to financial hardship would be difficult for a number of reasons.
Mr Reeve questioned what level of hardship would be required and how trustees assess whether the hardship is genuine or sufficient. He also pointed out that while one financial hardship may be resolved by early access, poverty in retirement may end up being the outcome.
He said: “Pensions investments are established to offer maximum value at the members retirement age not at an early age. Significant early redemption may affect the returns available.
“I suspect that a policy like this will have the effect of making savings into pensions more attractive for some people but it will also have the effect of increasing poverty in retirement as people access their savings early.”
Mr Reeve added that perhaps more importantly, he felt strongly that the pension rules need to stop being meddled with.
“The industry can, and will, make the current rules work but we cannot expect this to happen if we keep changing things even if there are good reasons for it. Providers and trustees are already being criticised for not offering all of the options available through pensions freedoms.
“If we keep changing the options available we jeopardise the chances of making the most of the new rules.”
Claire Trott, head of technical support at Talbot and Muir, added that while the ill health test is “pretty clear cut”, the definition of hardship could be difficult to pin down, as it can be “quite subjective”.
“I feel that it is something that could be considered but would need to be fully consulted on, there are issues such as will accessing the pension early mean that the member would be in greater hardship in retirement so you could just be delaying the problem.”
ruth.gillbe@ft.com
