Early pension access: to boost pensions saving or alleviate hardship?

In the Treasury’s consultation paper on early access to pension savings they consider introducing this option for two reasons: as an incentive to boost pensions saving and as a means to alleviate certain cases of hardship. In a previous blog post I argued that allowing early access would boost pensions saving – the mere potential to “get back” at least some of the pension savings would both encourage more people to put money into a pension in the first place and give pension savers the confidence to put more in. However, I find the argument for alleviating certain cases of hardship much weaker.

My main concern is that this seems to be a potentially dangerous “double or quits” option – just the sort of gamble that might appeal to desperadoes whose penchant for risk-taking put them in hardship in the first place! Some might successfully be bailed out; others would add future woes to their current ones, having ransacked some of their pension fund. Wherever the balance lies between those two camps, we are in any event talking about a small proportion of pension savers.

Double or quits?

Defining “hardship” also seems legally and administratively tricky. What counts as hardship and what doesn’t? Inevitably, there will be challenges as to why one case qualifies and another doesn’t. What happens if a pension administrator gets it wrong? And will the potential cost, sanction or reputational damage from this put them off offering early access at all?

Certainly, involving a pension administrator in determining an individual’s circumstances – to see if their case of hardship qualifies – seems complex from the administrator’s point of view and potentially expensive. People in hardship may be more willing to overlook the charges. More recklessly, they may try to “save” the cost of advice – a false-looking economy but then hardship cannot be expected to aid rationality. Worse, they are at the market’s mercy if they are forced sellers of pension investments.

Ditching talk of hardship would avoid detracting from the potential benefits of encouraging more people to start a pension and to put more in. Some may in fact be helped out of hardship by early pension access, I just don’t think enshrining it in legislation helps anyone. What is key is the method of allowing access and I will look at the options in a future post.

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About sipphound

Chewing over pensions, saving and retirement issues. Sniffing around financial planning, personal finance, investing and behavioural influences. All personal opinions, no company represented and no advice given.
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