Could allowing people to access their pension savings earlier encourage them to make bigger contributions?
The Pensions Policy Institute (PPI) has published new research examining the pros and cons of allowing early access to pension savings. It looks at the 401(k) system that exists in the United States and questions whether something similar could work in the UK.
According to the PPI, allowing limited early access to pension funds in specific circumstances could encourage more people to save and make bigger contributions. Indeed, it claims this has been the outcome of early access through the 401(k) scheme.
However, it adds that such a move could also reduce the income people receive in retirement if early access is permitted without restrictions or if people do not sufficiently increase the amount they contribute to make up the shortfall.
Chris Curry, research director at the PPI, said: "There are many different possible ways of allowing access to savings within pension funds and some are already in use internationally."
If early access was permitted, overall pension savings in the UK could be increased by 30 percent by 2050, the PPI calculates. However, if contributions were not boosted or people did not repay what they had borrowed from their funds, then pension pots could shrink by seven percent.
The research comes as figures from Prudential show that as a result of the financial crisis, the average amount being put into pension funds by UK workers each month has dropped from £279.38 in March 2007 to just £129.35 today.
