A London-based firm is to offer a “pension credit card” next year for those wanting flexible access to their retirement savings, with at least one major insurer looking to do the same.
The Telegraph reports that WisePension plans to launch the product late next year, following major reforms taking effect in April which mean anyone aged 55 or over will be able to take their entire pension pot as cash.
The card will work in high street shops, cash machines and online stores, allowing consumers to treat their pensions like ordinary bank accounts.
At the end of each month the card’s balance will be cleared using cash in the customer’s pension pot. There will be a spending cap so pensioners cannot fall into debt.
WisePension chief executive Jon White says: “Technically, we can’t limit how much of their pension people spend on their cards, but we will be doing a lot to encourage people to spend responsibly.”
Savers will track their purchases and balance using an online “dashboard”, he said, which will look “very much like online banking” and include tools to work out their tax liabilities.
Several pension companies said they would wait to see if the WisePension card proves popular before considering a similar service.
One FTSE 100 insurer admitted privately that a debit or credit card option “had been discussed”.
However, senior industry figures said they had hesitated over fears that a card could encourage savers to spend their pension pots too quickly.
Barnett Waddingham senior consultant Malcolm McLean warns the cards could lull savers into a false sense of security in thinking that their pension is exactly like a bank account.
He says: “Anything that makes getting money out of your pension simpler is potentially a very helpful thing. But people have to understand that a pension is not the same as a bank account, because with a pension you will be taxed on some of your withdrawals.”
Before they start using the cards, savers will be asked to decide whether they want to take their 25 per cent tax-free lump sum immediately, meaning that all their initial withdrawals would be tax-free, or whether they want to have tax relief applied on a pay-as-you-go basis, meaning 25 per cent of every withdrawal would be free of tax.
Once their account is up and running, they will be asked to reselect this option every year.