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Government to give people early access to their pension cash

A leading pension expert has said the government will shortly announce a measure giving people early access to their retirement savings. Inevitably there will be strings attached.

Government to give people early access to their pension cash

A leading pension expert has said the government will shortly announce a measure giving people early access to their retirement savings. Inevitably there will be strings attached.

Change aimed at encouraging savers

Adrian Boulding, the head of pension strategy at Legal & General, the insurer, has revealed plans by the Treasury to allow individuals to withdraw money from their pension plans before they retire.

Boulding, who has advised the government on a number of retirement reforms, told a pensions industry conference yesterday that an announcement would be made in the next few weeks.

According to Boulding, the plan is to give pension savers early access to the tax-free cash lump sum they withdraw from their pension fund when they retire. Currently, up to 25% of a pension plan can be withdrawn as people retire from age 55 onwards. The rest of the money has to be used to provide an income in retirement.

Don't spend it on a holiday

However, there will be restrictions as to what people can spend the money on.

Boulding expected the change to be made in a ‘very simple way.’ ‘It would use the tax-free cash lump sum. All that is required is to change references in the legislation from at retirement to pre-retirement,’ he said.

He added: ‘I understand they would also restrict it in terms of what you can take money out for; educating children, housing and health care.’

Is this a good idea?

Do you think this is a good idea? For a personal take on what the government is planning read Max describe how 'I cashed out of my pension at 28 - and now regret it'

Enabling early access to pensions cash has been an objective for some time of pensions minister Steve Webb. He told the Liberal Democrat conference in the autumn that the reform would make it more attractive to people to save into a pension.

However, while some experts welcome the proposed flexibility, others fear that it could further complicate retirement planning, an area that many people already find difficult to understand.

Speaking at the Tax Incentivised Savings Association conference, Boulding said that the Treasury wanted the measure to be tightly controlled, due to its potential economic impact. ‘Essentially there’s a big wedge of pension money that would seriously stimulate the economy and the Treasury would want to rein that in,' he said.

Pensions expert Dr Ros Altmann said: ‘I believe they are going to try to do something on early access – but it will not be for the whole pension, only the equivalent of tax-free cash perhaps and only for specified use. Although I hope that condition may be dropped.’

29 comments so far. Why not have your say?


Dec 01, 2010 at 14:39

So - however will the powers that be police the restrictions on things you can spend your money on? Seems unworkable to me. Will we get yet another wodge of government employees overseeing this?

What I would like to see is some legislation letting

me get at the remaining 75%, which at the moment is on drawdown incurring rip off charges from the pension provider and trustee.

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Paul H.

Dec 01, 2010 at 14:39

That's all very well for those who have not yet retired, but there's no incentive for those who have retired and already taken their tax free 25%, often many yaers ago. For some people, the choice of an annuity is no good particularly if they have health problems and want to fund care or private treatment now. Why not allow withdrawals even if taxed to enable those with a lower life expectancy to enjoy a decent lifestyle without being a burdon on the State in their remaining years?

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glyn linder

Dec 01, 2010 at 14:52

Absolutely ridiculous and irresponsible. As a financial adviser we were always taught the need to stress to clients that taking any benefits before age 60 was not to be recommended.

Human nature being what it is the money will be frittered away, and in retirement when it is most needed, thare won't be any left.

This is a brainless recommendation.

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Dec 01, 2010 at 14:53

It's simple. Let the suckers have early access to some of their pension pot so they can help spend us out of the recession - leaving an impoverished pot to provide an inadequate pension for some future government to sort out.

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Graham Hacker

Dec 01, 2010 at 14:54

This might provide a boost to the economy in the short term, but in the long term it will reduce the amount available in retirement. We are always being told how low retirement investment/savings are, and this would reduce them still further. I agree with the MikeR that there is no way the government could restrict what people spent the money on!

Sounds like another short term populist change with no long term thought!

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Dec 01, 2010 at 15:07

If you have wealth, then why would you access it? If you have a limited income and little savings; great care should be taken to access it. Care and accomodation are the only two legitimate reasons I would permit. But if we are living longer should '60' become the new '55' ? Personally, I am not a fan of early access. The primary objective is to maintain your standard of living beyond your working life at an acceptable level. My fear is that it could be come an artifical means of stimulating the economy and then the rules would be under pressure for further relaxation. The problem is once that tax free lump sum has gone who do you depend on to fill the deficit as time moves on; 'the state'? It is definitely a case of 'once the genie is out of the bottle'.

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Dec 01, 2010 at 15:16

This sounds pragmatic. Some people are being forced out of their houses because they can't aford the mortgage but have a large amount of money sitting in their pension fund. For these people they would be better to use it towards their mortgage than let is sit in a pension fund. But the government also needs to make sure that someone spending their pension pot doesn't later need income support when they retire to prop up an inadequate pension.

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Dec 01, 2010 at 15:26

A Fantastic idea. It is a personal choice and freedom. It depends on individual circumstance and need. I don't want to patronise anybody here.

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Anonymous 1 needed this 'off the record'

Dec 01, 2010 at 15:28

what is needed is to be permitted to run ones own pension without rip of charges

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resident in London

Dec 01, 2010 at 15:31

Wouldn't this encourage more people to go into buy-to-let property making it even more dificult for people to buy a home to live in?

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small businessman

Dec 01, 2010 at 15:33

What if one of the "allowable spend options" is reinvesting into a pension?

For example .... I am 55, take my 25% tax free cash from my current pension pot, reinvest it into a pension, get all the relevant tax reliefs, then take 25% from that new pension pot, reinvest it....and so on.

A sort of rolling or "churning"exercise?

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Dec 01, 2010 at 15:41


Dec 01, 2010 at 14:39

If you are paying "rip off" charges as you call them then why did you agree to them in the first place?

How much do you think your provider should charge for providing the service you are using?

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Dec 01, 2010 at 15:54


Somewhat like encouraging people to take Pension Holidays.

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Dec 01, 2010 at 16:06

My plan + advisor fees was taking about 4-5% in charges when you added it up so I moved them all. FA's get about 1% for the lfe of the plan , at least they do until 2012.

The way to avoid rip off charges is to take out a SIPP and manage it yourself. The charges are about 15% of a conventional pension plan . Try Hargreaves Lansdowne. Im up over 10% this year already.

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Dec 01, 2010 at 16:49

small businessman, there would be little point in reinvesting your tax free lump sum in an additional pension. I can't see what you mean. You have never had yo take it as a tax free lump sum you can buy an annuity with the whole lot if you wanted.

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gggggg hjhjkl;'

Dec 01, 2010 at 17:04

John what has the fact you have a SIPP with HL to do with the fact you are 10% up this year??????

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Lets Face It

Dec 01, 2010 at 17:04

Another day, another daft proposal for another daft government to make another daft decision. They are all mad, mad I tell you..arrrrggghhh

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Rob M.

Dec 01, 2010 at 17:19

Ten years ago I became very ill and found that I could support my family out of the difficult period that followed by taking my 25% tax free lump sum from my five or so pensions, I had no illness cover etc.

It was not until some years later that I found out that I could have pooled these pensions together under the best provider giving me the best return from the remaining capital. Too late now!

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Anonymous 2 needed this 'off the record'

Dec 01, 2010 at 17:33

Even allowing for the tax free aspect ,are personal pensions a good long term investment ?

I think we would all have been best served if the state had kept its nose out of our affairs and we stood or fell on our own merits

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small businessman

Dec 01, 2010 at 18:29

@ Anonymous 2 - well, yes, i agree the value of investing in pensions is a matter of opinion (and proper consideration ) and I know they haven't performed as well as perhaps they should but the availability of tax relief up to 50% this year could be the clincher.

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Dr Jimbo

Dec 01, 2010 at 21:26

I say we should have access to the whole pension savings sum after 55. I have just sold my house and am renting; but all the financial advisers I speak to say I have to invest the proceeeds for 5-10 years and not even think of withdrawing more than 4% of it. At that that rate I will have to live until I am 91 just to get the capital back, never mind any capital appreciation. Their argument is my wife is 12 years younger so I shoud work on a 40 year time horizon. What bollocks!

The pension system is a complete nonsense. The savings we have are OURS not the State's or the SIPP providers or anyone else's. With Saudi Arabia urging the US to start a 3rd world war, Pakistan not securing its plutonium and North Korea providing Iran with ICBM missile technology the 40 year time horizon is stupidity.

Long term investing is for the birds - life is short and getting riskier. We should be working on no more than a 3 year time horizon. A|sk any CEO of a global company what time horizon his company really works on - and most will say a year!

We need to get real and release these funds into the hands of their owners and not carry on creating more nany state regulations to stop them using it.

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Stephen M

Dec 01, 2010 at 22:10

It's our money and we should be able to access it any time we choose.

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pam buchanan

Dec 02, 2010 at 07:46

there are some sensible people in the land - who would like to pay off their mortgage, give their children a good education, ensure access to good health services who would very much appreciate this. Excellent idea.

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Barrie Davies

Dec 02, 2010 at 11:25

Good for the financially astute and bad for the not so.

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Dec 02, 2010 at 14:57

It's the other 75% that we should be able to control.If the annuity is adequate or better then you would not take it out. Even then there should be 2 rates one where the capital is repaid to your estate on death and the other where they will keep it. They would not be able to keep the capital and pay the ridiculous annuities that they currently pay. Am I the only one that considers it to be theft

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Jayanti Gandhi

Dec 02, 2010 at 15:28

Monitoring the use of cash will be costly and difficult to implement unless there is direct contract between pension provider ( NOT pension holder)and authorised service providers.

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alan stern

Dec 02, 2010 at 16:40

Well, I believve the Americans allow early access so why not. You start a private pension of your own free choice so why shouldn't have access before you retire it should encourage more people to start a pension.

On a more important note would be the announcement that you could take the whole pension pot on retirement (subject to some level of tax) as promised by the Conservatives manifesto), rather then be ripped off by the 6% odd annuity rate (at 65) offered by the annuity insurance companies (I bet they are lobbing against it) where it takes nearly 17 years to get your fund back (and your 82 then and haven't received anything but your own money back - before tax - let alone had any return in that 17 years). Worse still if your family life expectancy is not good.

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Dec 02, 2010 at 20:02

Several dangers in this - many will just take the cash as an easy option and many of those will then be short on funds for retirement and who will pay that bill? Yet one feels for someone about to lose their home who has the means to cover it in their pension - strident control of use would be needed and to be effective that could be done through the existing court system when someone faces a repro order the judge could order the release of the funds - but even then there will be some who 'work the system' by targeting areas of debt etc.

Regarding HL and being up 10%, I don't think he was saying: because he is with HL he is up 10% - The point being made is he has taken control himself and has much lower costs [which he can control himself] and as a result is up 10% - I have found this to be the case myself [also with HL] and over 5 years my pension is up over 50% and that includes the crash!

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Dec 02, 2010 at 20:52

It all depends ....

A number of the comments here are good and valid, but there are also some comments which are a load of tripe.

As an IFA, for my sins, we are meant to look at the client's whole picture and Yes, this may mean it would be better someone accessing eg 25% of their fund early. As one or more correspondent has said, 'it's our money', not the Government's.

On a mathematical basis, it may be better to access the monies well before 60 or even 55 or 50, as the rate of saving (on not paying mortgage interest, for instance, if able to fully pay off the mortgage 'now') may be greater than the return over the next few years, particularly if poor investment decisions are made.

Assuming that the overall legislation remains unchanged (some hope) and that rates of return are somehow equal, then 25% of the pension fund now will have exactly the same overall value to an individual as 25% of an increased pension fund at 'retirement' (an increasingly nebulous word) - but one may have paid off the mortgage and slept easier!

Also, whilst I know that it will 'never' happen, what if tax free cash (or the Pension Commencement Lump Sum as it is now formally known, though seldom referred to as such) suddenly becomes taxed cash; those who have already had a bite of the cherry will no doubt feel a lot happier.

And remember, it's our money.

Best of luck - we need it.

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