On 13 December 2010, the Treasury launched a “call for evidence” on early access to pension savings. It puts forward four potential models, under which individuals could gain access to their pension funds before the current normal minimum pension age of 55:
- Borrowing from pension savings: in broad terms, this is based on the US 401(k) model, with a requirement to pay the loan back with interest;
- Permanent withdrawal: loosely based on New Zealand’s “KiwiSaver” model, this would likely be limited to cases of severe financial hardship, potentially where the member’s home was at imminent risk of repossession;
- Early access to a cash sum: subject to the current limit of 25%, but potentially based on the fund value at the time the lump sum was withdrawn; and
- A feeder-fund model: for example, by providing an ISA and a pension product under one wrapper.
The consultation notes that there are clear downsides to each model, especially the risks of recycling tax-relieved funds and the potential of creating an unwieldy administrative burden. However, these may be counterbalanced by arguments that early access models could act as an incentive to save.
The consultation reflects the embryonic stage of the Government’s thinking on this issue; it closes on 25 February and can be accessed on the Treasury’s website.