No early access to your pension

The government has decided not to allow early access to pension funds, after ‘limited evidence’ was found supporting the measure.

Included in the reasons for denying earlier pension access is the likely higher costs for administering this access.

It would cost investors more to get early access to their pension benefits and pension providers would also face significant costs in upgrading their systems to administer the facility.

It could have cost some pension providers as much as £5m to upgrade their systems. Investors would have seen transaction charges of up to £300 for getting early access to pension cash, with a 15-20% increase in the cost of annual management charges on their pension plans.

The idea of granting early access to pension funds had both attractions and potential drawbacks.

Having money locked away in a pension environment is usually good news for retirement planning. If early access had been granted and the money was spent unwisely, it could have left many people financially worse off in their older age.

That said, there are circumstances where it would have made real sense to allow early access.

Where people have expensive debts, these are likely to be a drag on their ability to meet longer term financial objectives. Using pension money to repay these debts would then allow the money spent on servicing those debts to be redirected towards retirement savings instead.

Granting early access to pension cash would also have given people better access to a source of cash for investment; something which could have benefited UK economic recovery.

The reasons for the Treasury dismissing this idea are understandable. We are both happy with the decision and disappointed that this additional level of flexibility will not be available for pension investors.

Photo credit: Flickr/Martin Bamford