Personal Pension  

LV= renews call for early pension access to stop ‘unlocking’

Allowing people early access to the tax free cash lump sum of their pension fund would help tackle pension liberation schemes and would also encourage pension pension engagement, Ray Chinn, head of pensions at LV= said.

In an interview with FTAdviser, Mr Chinn said that allowing people early access to their 25 per cent tax lump sum would counteract pension liberation companies as “they would have a much smaller target market”.

Mr Chinn said that LV= has stopped a handful of pension transfers to pension liberation companies, but he admitted that regulation does not help matters.

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He said: “We’ve had a handful of cases and one guy that said, following our refusal to transfer it, that he will find a way to transfer it and that he will transfer his pension to another scheme that we will accept and then he will transfer it on from there.

“There’s very little we can do about that, other than tip off the other scheme but they might well do the transfer.”

Mr Chinn also believes that early pension access would increase people’s pension engagement.

He said: “So instead of taking 25 per cent on retirement which most people probably do, if you could take 5 per cent when you’re 50 for example to pay off your mortgage, then you are restricted to 20 per cent on retirement.

“However the devil will be in the detail, how the tax works, or how you keep tabs on it. But you can make a whole industry out of that. But as auto-enrolment starts to follow through, would they actively think about early access becoming something to help with that engagement policy?

“Our view is as long as people are sensible and you put some sensible rules around that, that can be a very good way of engaging with pensions.”

LV= conducted a survey three years ago into early pension access and 24 per cent of 1,557 adults that were over 50 said that had they been allowed access to some of their pension fund at a number of points, for example, life stages like the birth of a child, this would have encouraged them to save more into their pension.

Mr Chinn said however that early access should only be allowed for “certain controlled life events”, despite the government kicking this idea into the long grass last year.

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.

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.

Mr Chinn said: “I think the fear is that people will take everything out really quickly but the reality is that once people have built up a pot they are quite proud of it and they want to keep it. So that’s an interesting opportunity and early access might come back round for us.”