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Steve Webb: Govt should use trivial commutation to promote savings

Pensions minister Steve Webb says the Government should use trivial commutation as the “selling point” of automatic enrolment to promote savings.

Current trivial commutation rules allow people aged over 60 who have total defined benefit and defined contribution savings of less than £18,000 to take their entire pension fund as cash.

Speaking at a Strategic Society Centre event in London last week, Webb said trivial commutation rules could be used to boost take-up among the over-55s.

He said: “In the early days of auto-enrolment we know there will be lots of people enrolled for a few years and ending up with a few thousand pounds.

“We need to communicate the fact that is still worth doing because if they can find anyone to give them an annuity for it they won’t be very impressed. 

“Actually, the way they feel about a £2,000 pension is very different from a £2,000 lump sum.”

Webb said older people were more likely to opt out of auto-enrolment because they underestimated the cost of retirement as well as how long they wouldwork and live.

He added: “How do we communicate to those older workers that even relatively modest pension savings are worth having because you get employer contributions, you will work longer than you think and you don’t save as much as you think, particularly in a DC world?”

FortyTwo Wealth Management partner Alan Dick says: “People are not saving because they are fed up with politicians tinkering with pensions rules. It is not because they want a lump sum at the end.”

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