Advisers support the coalition Government’s plans to look into allowing early access to pension savings but warn that safeguards must be put in place to prevent savers raiding their pension funds too readily.
In the Conservative and Liberal Democrat final coalition agreement published last week, the Government says: “We will explore the potential to give people greater flexibility in accessing part of their personal pension fund early.”
The Government has also committed to simplifying pension rules to help “reinvigorate” good quality workplace pension schemes and has supported auto-enrolment.
The agreement says: “We will simplify the rules and regulations relating to pensions to help reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees, and we will work with business and the industry to support auto-enrolment.”
The more detailed agreement does not say whether higher-rate tax relief on pension contributions will be axed, as called for by the LibDems, nor does it mention the future of the national employment savings trust, which both parties pledged to review before the election.
Hargreaves Lansdown pensions analyst Laith Khalaf says: “Providing early access to pension funds is a very positive step in encouraging pension saving. It will mean that savers are willing to pay into their pension through thick and thin, safe in the knowledge that they can get hold of those funds if they fall on hard times.”
Syndaxi Chartered Financial Planning managing director Robert Reid says: “The Government will need to have rules to make sure people make up the amount they have taken out. With the 401(k) plans in the US, savers have to pay back the loan from their pension fund at a prescribed rate. They should be looking to do the same thing here. Provided they have adequate controls, I believe it would certainly encourage more people to save.”
The coalition programme
Reform the banking system with a levy and bonus restrictions. Launch a commission on separating retail and investment banking to report within one year. Give Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation. Launch free national financial advice service, funded by social responsibility levy on the financial services sector. Create a single agency for economic crime combining work of Serious Fraud Office, FSA and Office of Fair Trading.
No new regulation, without other regulation being cut by a greater amount. Impose sunset clauses so the need for each regulation is regularly reviewed. Cut corporation tax and tackle avoidance.
Give courts the power to insist repossession is always a last resort and ban orders for sale on unsecured debts of less than £25,000. Review effectiveness of raising stamp duty threshold for first-time buyers. Promote shared-ownership schemes. Scrap home information packs but retain energy performance certificates.
Cut £6bn from non-frontline services within the financial year 2010/11 and hold a full spending review, reporting this autumn. Publish deficit reduction plan in the emergency Budget. Stop NI rise for employers. Reduce spending on child trust fund and tax credits for higher-earners. Reduce number and cost of quangos. Create a green investment bank.
Pensions and long-term care
Restore earnings’ link for the basic state pension from April 2011, guaranteeing pensions are raised by the higher of either earnings, prices or 2.5 per cent. Establish commission to review long-term affordability of public sector pensions. Phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women.
End compulsory annuitisation at 75. Explore early access to personal pensions. Reinvigorate occupational pensions and support auto-enrolment. Establish a commission on long-term care, to report within a year. Follow Parliamentary Ombudsman’s recommendations for payments to Equitable Life policyholders.
Increase personal allowance for income tax towards £10,000. Offer transferable tax allowances for married couples. Tax non-business capital gains at rates similar to those applied to income, with exemptions for entrepreneurial business activities. Review non-doms’ tax.