Leading pensions expert Adrian Boulding let the government’s cat out of the bag this week by revealing their upcoming plans for the reform of UK pension rules. Boulding, head of pension strategy at Legal & General and a government advisor, stated that the coalition will shortly announce changes to UK pension rules that will allow individuals to withdraw money from their pension, prior to retirement.
Currently, an individual can withdraw up to 25% of their pension fund if they take early retirement. This lump sum is tax-free, but can only be withdrawn by those aged 55 and over. Under the new plans, this entitlement would be extended to everybody below retirement age. The remaining 75% is safeguarded to provide a retirement income.
Liberal Democrat pensions minister Steve Webb has long been advocating the move, making it a key note in his party conference speech earlier this year. Webb believes that the added flexibility would encourage people to save into a pension scheme earlier and to deposit larger sums of money.
If the plans come to fruition, they will have strong ramifications, so there will likely be caveats on what the tax-free lump sum can be used for. Luxury items such as holidays are likely to be ruled out in favour of investments which will provide an economic boost to the UK. As Boulding commented, “Essentially there’s a big wedge of pension money that would seriously stimulate the economy and the Treasury would want to rein that in.”
The news is receiving mixed reviews among pension providers and experts. While some agree with Webb that the extra flexibility is an incentive to save, critics fear that the plans could further complicate retirement planning, alienating those it is trying to help.