In times of a cost of living crisis, and with fears that another recession is on the way, dipping into a pension might be seen as a solution for desperate times.
But people should not kick the can down the road as this could prove costly in the future, with many not being able to retire when they need to if they raided their pots in the years before.
The Association of British insurers has called on the government to let savers dip into their pensions before retirement age if they are facing serious financial hardship, as many people currently struggle with the cost of living, rising inflation and soaring energy prices.
The ABI said although this was not the intention of pensions, there could be times when the funds locked away in these products could be “life-changing” for people.
But this is not the first time the idea of opening up pensions to those in need has been mooted.
A few years ago, MP James Brokenshire, who was the housing minister at the time, suggested first-time buyers should be allowed to dip into their pension pots to enable them to get on the housing ladder.
Unsurprisingly, he came under fierce criticism that this would leave a shortfall in retirement savings and that early access to pots would be tempting but unsustainable.
While granting access seems to be a quick, easy solution to solve a problem that exists now, it will just create a bigger problem in the future where a cohort of people will be unable to afford a comfortable retirement.
There is a good reason as to why pensions are not able to be accessed until a certain age, and that is so people will have a sizeable pot in later life when they are no longer able to work.
There are only certain circumstances in which someone can access their pot before this time and that is either because they are too ill to work or have a terminal illness and have less than a year to live.
Currently being in financial hardship is not a good enough reason.
Are there other ways?
With any proposal of this kind there is a raft of things that need to be considered before rules are changed.
First, how would the government decide who is in serious financial trouble and should be allowed to dip into their pots, and who is not? There would have to be robust processes in place so that only those that really needed funds could be allowed to do this, but this could be hard to police.
Second, would these people then be expected to top their pension back up once they have sufficient funds to do so? If not, these people could face financial hardship into retirement as well.
Third, and what sadly is a consequence of a lot of rule changes in the pensions world, it may open another door to scammers. Fraudsters could contact people to access their pension early if these proposals were to go through.
Rather than opening access to pensions, it would be better to exhaust other routes first. For example, if someone had an Isa or investments it may be better for them to dip into these beforehand.
If this is not possible, people could reduce their pension contributions but without opting out of auto-enrolment altogether. This way they would see more money in their pay packet each month and could return to normal contribution levels when they felt as though they had the funds to do so.
It is very hard to juggle short-term issues with long-term goals, but as has been drummed into people for a while now, it is very important to keep paying into a pension as your older self will thank you.
To let people dip into their pots would go against everything the government, regulators, providers and advisers have warned about. It would feel like a step backward in the fight to improve people’s saving habits, which is something people cannot afford to happen.
Amy Austin is news editor at FTAdviser
