The Association of Consulting Actuaries has thrown its support behind early access to pension, contradicting responses from the NAPF and figures in the fund management industry.
Responding to the Treasury’s consultation on early access, the Investment Management Association says rather than increase participation and contribution levels, early access could result in unintended consequences such as greater complexity and worse outcomes for individuals in retirement.
The NAPF says letting people dip into their pension before they retire could increase dependency on state benefits and create a bureaucratic nightmare for pension providers.
But the Association of Consulting Actuaries says it supports the proposals, arguing meaningful help could be provided to scheme members with limited effort or cost. Without such a change, younger people paying off student debts or saving for homeloans will not connect with pensions, it argues.
It has attacked the view that people will necessarily end up with less in retirement because in many situations they would use the money withdrawn to put their finances on a more stable footing.
The ACA points out that at present retirees can take retirement tax-free cash without any constraints as to how it is used or misused. Under a sensible early access model the use to which sums taken early could be put would be more “controlled” , it argues, meaning the risk of rash expenditure would be reduced rather than increased.
It argues the qualifying reasons for early access should be confined to items such as house purchase, mortgage or rent arrears or a child’s university fees. If this proves too complex, access to the accrued but undrawn lump sum could be given on a 5-year basis, it says.
ACA chairman, Stuart Southall says: “In our view it makes little sense to dismiss the idea of early access on the basis of it either being available already, for example, through Isas or because it is not possible to definitively prove that early access will increase pension saving. Few things are properly understood about pension saving, but the evidence suggests that even those in their early 20s understand – and most are frankly entirely switched off by the thought – that pension saving means locking funds away for 30 years or more.
“If you cannot see beyond the end of your student loan repayments, or other expected cost obligations, are you seriously going to commit your limited funds to such a vehicle?”
IMA head of research Jonathan Lipkin says: “Providing an early access facility has some intuitive appeal, but there is insufficient evidence that early access will result either in higher participation or contribution levels. At the same time, greater administrative complexity and costs will inevitably arise from such a step.
Mike Morrison, head of pensions development, Axa Wealth says: “In most cases it would seem that early access would not ease hardship – for those most likely to make a claim, their pension fund is unlikely to be of sufficient amount to assist. The average pension pot is something just over £25,000, which might yield an income in retirement of about £1,200 pa and early access – without a commitment to rebuild a pension pot – severely impact a person’s income in retirement, and risk that person having to fall back on the state for support.”