ACA shares concerns expressed by many commentators that adequate retirement provision must not be compromised by draining pots too early in life. However, it believes that, with sufficient safeguards, a more flexible approach to saving is preferable to requiring separate savings for different purposes.
ACA Chair, Jenny Condron commented: “Anyone over the age of 55 can use their pension pot tax-efficiently for any purpose, including paying off mortgages. Given that younger generations will both work and retire more flexibly than in the past, we believe those under age 55 should also be given some, limited flexibility in how they use their pension savings in a tax-efficient way. We believe this would encourage greater and more efficient saving.”
The ACA has set up a Younger Members’ Group (YMG) within its membership of consulting actuaries. It is leading the development of initiatives within the ACA to consider possible pensions and savings reforms for people early in their careers and to carry out research, including with employers, around how additional flexibility might sensibly be approached.
ACA Younger Members’ Group Chair, Thomas Dalton added: “Young people today have many competing saving needs. Saving for retirement is very important and the sooner you start, the easier it is. However, for many, saving for a deposit on a house is also important. The Government currently incentivises both with tax-efficient pensions and with bonuses on Help to Buy ISAs, but young people have to choose which to contribute to and cannot move funds without penalty.
“The Lifetime ISA was intended to provide a flexible savings vehicle that could be used for both retirement and housing, but the restrictions on it render it largely ineffective. It cannot be used to meet auto-enrolment requirements and cannot receive employer contributions, so cannot replace a regular pension. We believe a truly flexible savings product would be of great value to young people and could encourage people to save more and earlier.
“Reasonable concerns have been expressed that this could lead to worse retirement outcomes, but this is by no means certain if careful rules are applied. Young people already save towards a deposit on a house but often in inefficient ways. If those savings were paid into a flexible savings vehicle along with existing retirement savings, they could be used to fund a house deposit without reducing the amount available for retirement. There should be limits on the amount that can be withdrawn and should be mandatory additional contributions following a withdrawal to ensure it is replaced.
“It has been suggested, quite rightly, that more effective policies to increase the supply are also needed, but it will still be necessary to save up for a house deposit. A flexible savings product that meets the varied needs of young savers would encourage greater and more efficient saving.”
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