There are some experts suggesting that pensions should not only pay-off in retirement and be then used to buy an annuity. Take the view of Baroness Patricia Hollis; she has an idea to make pensions more useful to people right throughout their working lives and not just when they reach retirement. A good idea? One that could be implemented without too much trouble?
Her simple idea is that people should be allowed to draw on the tax-free cash element of their pension savings at any age without having to wait until a pre-set date in their fifties to do so. She is suggesting that this access to tax-free cash is a permissible path without the need to get into annuities.
The Government wants to help people build up accessible savings through initiatives such as the Savings Gateway, for example, so that more people become better equipped to meet life’s many downturns. Such initiatives might work in the longer term and allow people to build up a savings pot, but a change to the access rules for tax-free cash, it is argued, would achieve the same result much more quickly.
Such a change would also fit well with the Government’s initiative to auto-enrol some 10-12 million people into pension saving from the year 2012. There’s probably more chance that more people will save in a pension in the first place if it might also fulfil the role of providing a cash cushion that can be accessed any time throughout life. People might even be encouraged to save even more in their pensions than they currently do if such an easily understood benefit came as part of the package. Quite an interesting take on a non retirement option, if you see what I mean.
Many advisers feel that this option would be very sensible for clients, and would get them to save more, which, I suppose, ultimately leads to a bigger pension fund to find the best annuity rates and a bigger income at retirement.
