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.”