Allowing limited early access to pension pots could boost aggregate retirement savings by up to £400bn, a Pensions Policy Institute research report finds.
The research body's report - funded by B&CE Benefit Schemes and Legal & General - said allowing savers early access to their pension pots could increase participation and overall savings rates - but noted there would have to be a balance between making saving more attractive and discouraging "excessive access".
The paper identified four basic types of scheme withdrawal including:
- "loans and withdrawals", based on the US 401(k) model where savers can take loans from their funds which they must then pay back with interest or, in cases of hardship, can make permanent withdrawals.
- "permanent withdrawals", based on the New Zealand KiwiSaver model, where people can withdraw funds permanently under certain circumstances with no obligation to repay.
- "feeder funds", a combination of a pension fund and an individual savings account, where any contributions a saver makes goes to a liquid savings account up to a fixed limit and then any subsequent contributions are diverted into the pension fund.
- "early access to lump sums", which permits early access to 25% of people's pension pot at any age. This is based on the existing provision for people to access 25% of their pensions savings tax free from the age of 50.
The PPI estimated the "loans and withdrawals" model could increase aggregate savings by 30% by 2050 - equivalent to £400bn. However it noted that, if savers stopped contributing while paying back loans, this could lead to a fall of £70bn.
It calculated the "permanent withdrawals" model could lead to an extra £300bn by 2050, or a £100bn reduction in assets.
It did not have projections for the "feeder fund" or 'lump sum" models.
The PPI also cautioned that implementing a savings access model similar to 401(k) or SuperSaver schemes would not necessarily mean the results would be the same, and the potential for higher or lower savings levels remained.
PPI research director Chris Curry said "There are many different possible ways of allowing access to savings within pension funds, and some are already in use internationally. The 401(k) system of loans is well established in the US, and evidence suggests that this early access increases both the number of people saving in 401(k)s and the amount they save, even though only around 20% of people make use of the early access facility each year.
"If a similar system were introduced in the UK, this could increase aggregate pension savings by around 30% by 2050. However, if people in the UK didn't increase their contributions, or didn't repay their loans, then pension funds could be 7% lower. "
B&CE Benefit Schemes deputy chief executive John Jory said "Our experience suggests that introducing early access options could make a big difference to the numbers of people who save for their retirement."
Legal & General wealth policy director Adrian Boulding added: "Allowing early access will be another step along the journey of putting the consumer in control of their own financial destiny."Professional Pensions
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