Should workers be allowed to access their pension scheme aged 55?
As 6th April approaches closer and closer, more and more pressure is being put on the government to block workers from being able to access their pension savings too early in a report from The Commons Work and Pensions Committee.
The current legislation that is set to come into power next month will see savers across the country be allowed full access to their savings when they turn 55. They can choose to either withdraw the full amount; 25% of any withdrawal being tax free, buy an annuity to better prepare for life after work, take out a small amount or simply leave the pension untouched.
MPs are now warning that allowing people to withdraw their pensions up to 10 years earlier than state pension age may cause unrealistic expectations of when people can retire. There would also be a danger of people acting irresponsibly with their savings and running out of money to live when they have finally retired.
The Commons Work and Pensions Committee have suggested that for pensioner’s own good, the age at which we should be able to access our pension should only be five years before stage pension age. This would see men and women wait until they are 60 and 57 respectively. This, along with the stage pension age increase would see men and women have to wait until they are 62 in ten years time.
“Our view is that, given the significant tax relief provided for pensions, increased longevity, and the importance of ensuring that people do not underestimate the income they need in retirement, the age at which people should be able to access their pension pots should be changed to five years before the State Pension age, except where there are ill health grounds.”
Dame Anne Begg; Labour Chairman of the Committee
The report also went on to explain that “There are also significant risks for individuals from the new freedoms. These include: failing to make provision for the whole period of retirement or making decisions resulting in insufficient income in retirement; and exposure to fraudulent, mis-sold or detrimental financial products.”
Standard Life also explained that there is a very active fraternity of criminals who are seeing a much bigger opportunity in the new pension freedoms than the savers themselves. Stephen Soper of The Pensions Regulator also explained that while we can warn people of the risks of scams and criminal activity, it is still extremely difficult to completely stop people from placing their money into “improper” schemes.
The government, to help savers make their decisions have introduced a new government initiative; Pension Wise. However, as in our recent post and the report by the The Commons Work and Pensions Committee it is commonly thought that this scheme will be insufficient in protecting savers if and when they decide to access their pensions.
Fortunately, as of April 2015 there will be a new requirement from pension providers to ask certain key questions about savers’ circumstances before they are allowed to access their pension pot which will help to assess and decide if workers are in a good position to manage their pension.
What do you think about the new pension legislation? Do you think that it is wise to put people’s pensions into their own hands or do you think that people should be made to wait until they are closer to state pension age?