The U.K. government’s proposal to give workers access to their pension fund prior to retirement will only undermine the country’s retirement system, warns Mercer.
The new coalition government’s ‘Programme for Government’ document states that it will “explore the potential to give people greater flexibility in accessing part of their personal pension fund early.” Such early access—or leakage—is identified by Mercer research as problem in the retirement systems in Canada, Chile, China, Netherlands and the United States.
“Allowing members’ early access to their accumulated savings can have an appealing short term impact and satisfy a range of needs,” says Bruce Rigby, global retirement strategist with Mercer. “It’s also a politically popular policy but there is a sting in the tail. In countries where such leakage occurs, these payments are rarely paid back in full. This can lead to a lack of sufficient funds in retirement and a greater call on government funds.”
Rigby explains that most people underestimate how much they will need for their retirement or how long they will live, leading to inadequate retirement income and eventual dependence on the state. “Early access often means the fundamental goal of ensuring financial self-sufficiency in old age becomes much more difficult.”
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