A few weeks ago, I mentioned I had been engaged in a process of assessing the performance of my various pension funds and other investments.
As almost no one believes the state is an adequate guarantor of financial security in old age and, unlike some colleagues who are blessed with long-term membership of a company pension scheme, I have long saved for my retirement.
Thanks to past financial advisers, I have not confined myself to personal pensions and my money is also held in Isas, although the distribution of funds owes as much to luck as judgement as well as topping up my savings to the max each year within a tax-free environment.
Either way, the fact that up to a quarter of my retirement fund is held in assets that can be liquidated relatively easily regardless of my age means it meets many of the key criteria of the Government’s recent consultation paper on providing easy access to pension savings.
Although I have faced some tough financial challenges in the past 20 years, it has never led me to cash in any of my Isas or Peps. That it not to say I have not been tempted a few times, less because I was skint and more because I could contemplate alternative uses of my money other than leaving it stashed away for my retirement.
For example, a couple of years ago, I was drawn by the idea of building my own home. I had the money for the plot and most of the construction costs but I was a few tens of thousands short and using my Isas to make up the difference seemed like a good plan. It was only my partner’s common sense – she pointed out that building costs always overrun by at least 10 per cent, which would leave us on the breadline for another 25 years – that prevented a mass cash-in of assets.
Which brings me back to the Government’s consultation paper, which closed last week. Most of us can see the attraction of saving in a long-term fund that allows access to some or all the money in times of need. Such a view also strikes a chord with the public. The Treasury’s own consultation paper cites evidence from the Department for Work and Pensions, which suggests that among those not currently saving into a pension, 34 per cent say they would be more likely to do so if they could access savings before retirement.
Among existing pension savers, 26 per cent say they would be likely to save more if savings could be accessed before retirement. At the same time, a survey from the ABI shows 28 per cent say an option to access part of their pension early would encourage them to save. In fairness, 47 per cent say it would make no difference and 6 per cent say they would be less likely to save. But the key statistic here is not the majority unimpressed by such a proposal but the minority that is.
Faced with these arguments, plus the possibility that thousands of young people may never be able to afford to buy their first property, it is easy to see how early access to at least some of your retirement funds can seem attractive.
My worry is that despite all the best intensions of those who want us to save more, which is an aspiration I share, this proposal will not do it.
First, it is not clear to me that part of the purpose of incredibly generous Government tax relief on pension contributions, certainly in the 40 per cent income bracket, ought to be diverted to finance home purchase.
Second, I am not convinced it is a wise idea for people to be told that if they are really stuck they can use some of their future retirement savings to enter into even more debt in the here and now.
Third, although this is likely to lead to accusations of “dirigisme”, I have a gut feeling that if left to their own devices, too many people will go for the soft (or in my case, the stupid) option in the here and now, even if it stands to cause them future pain. If we go down the immediate access route to pension savings, prepare for an even greater number of people with inadequate retirement incomes.
Finally, the real problem is that most people cannot afford to save anyhow. In the DWP survey, 51 per cent agree with the statement that they cannot afford to put money aside for retirement at the moment, with 15 per cent strongly agreeing. Only 36 per cent disagree.
Those least able to save include the sick, disabled and economically inactive, or those with a household income of under £12,000. Early access to pensions is not going to turn these groups into savers.
In essence, this consultation paper will not help those for whom it is intended and could seriously damage the financial health of some who believe it may help them. As General De Gaulle once said of the May 1968 rebels in France: “Reforms, yes, but no to crap in the bed.”
Nic Cicutti can be contacted at firstname.lastname@example.org