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Advisers wary of calls for creation of pension ’emergency cash funds’

Advisers have reacted frostily to calls for auto-enrolment to be used to create rainy-day cash funds in a proposal designed to reduce reliance on payday lenders.

Hargreaves Lansdown has today called on Government to create ‘Emergency Cash Accounts’ with auto-enrolment contributions.

It says the pots of cash would create emergency funds for the 25 per cent of households estimated to be without access to cash savings. It warns those individuals are most at risk of ending up resorting to a payday loan.

In a note to be sent to Pension Minister Steve Webb, Hargreaves proposes three models for the scheme. They include keeping employer contributions in cash for two years, retaining Government tax relief as cash temporarily or allowing pension schemes to loan out a proportion of a retirement fund.

It says a body such as the Money Advice Service should sign-off on access before an individual can dip into their pension savings before 55.

Webb was reportedly interested in similar proposals in 2010 but advisers say the suggestion is flawed. 

Thomas and Thomas Finance chartered financial planner Darren Lloyd-Thomas says: “Individuals should not be able accessing tomorrow’s money to pay for today’s problems. Pensions should not be raided because people have been negligent about other savings.

“What Hargreaves say about a lack of cash saving is accurate but the problem rests in a lack of financial education. People need to be taught about the value of saving. This proposal is treating the symptom not the problem.”

“Payday lenders cannot be criticised for taking advantage of gaps in financial education.”

Murphy Wealth partner Adrian Murphy says: “The pension system is already complicated enough. Ultimately, there needs to be some responsibility on the individual to organise their own cash savings.”

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. To have the ability in the case of an emergency to access the pension fund is a good idea I have been saying this for the last twenty years.

    It would certainly help and encourage people to save on a regular basis.

    The member would be required to repay the loan on a commercial basis similar to loan back.
    I understand, that it is a system quite often used in America to help parents fund via a loan their children’s further education.

    If it’s good enough for companies to have loan back facility wise and it good enough for their members.

  2. @James Clancy – Sorry I am with Darren Lloyd-Thomas on this. The lack of an ability to access pension funds before age 55 protects the 55 year old self from the 30 year old self and means that neither payday lenders, not loan sharks can get hold of this money before you reach that age. Any lender who lends too much to someone when they are too young and the person goes bankrupt cannot access their pension benefits, this proposal would open the pandoras box of pension monies to creditors.

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