The government is flirting with the idea of allowing pension investors to enjoy early access to their retirement savings in times of financial emergency, according to reported comments from the Pensions Minister Steve Webb. The government’s intentions are twofold in looking at this idea.
Firstly there are undoubtedly occasions at present where an individual is facing significant financial hardship due to lack of available cash, in spite of the fact they may have thousands of pounds locked up in their pension. In these situations it makes sense to permit a limited raid on tomorrow’s money, in order to avoid catastrophe today.
Secondly, there is undoubtedly a disinclination amongst some potential pension investors to commit money to a pension today, for fear of needing that money in an emergency tomorrow. By relaxing the rules, the Pension Minister would make pension saving more attractive and would encourage more people to put more money into their pensions. This would be a good thing.
The problems are that if early access is permitted, there is a risk the money which will be needed to pay a retirement income would be frittered away needlessly before retirement. The answer to this is restrict the circumstances under which early withdrawal would be permitted, ensuring it would only be available at times of genuine hardship. This in turn though, could lead to excessive bureaucracy as the government imposes cumbersome checking processes to verify an individual really is sufficiently hard up to qualify for the hardship terms.
I am cautiously in favour of the idea and I look forward to seeing what concrete proposals the government will come up with; we’ll let you know when they do.
