Steve Webb, the Liberal Democrat pensions minister has said that if auto enrolment fails in 2017 the government of the day may look again at allowing people to have early access to their pensions.
Auto enrolment will start next year and conclude in 2017, it will see all employers having to enrol most of their workforce into a pension. Both employers and employees will have to make monthly payments. However there will be an option to opt out, and it is feared that many workers will decide to do just that, especially in these tough economic times, prices rising and low wage inflation.
Speaking at a National Employment Savings Trust (Nest) event Mr Webb said: “Auto-enrolment is a massive control experiment and we will learn from those who opt out.”
He continued: “We have put early access on hold but if it turns out the reason they opt out is because of not being able to have early access then we would look at that again at the end of the roll out period.”
Auto enrolment is designed to encourage people to start making provision for their retirement; the hope being that an automatic opt in will increase membership. However, experts are concerned that many people will simply opt out as soon as they are enrolled.
Malcolm Small of the Tax Incentivised Savings Association said: “If auto-enrolment has less than 20% of the population opted in it will have failed”
He continued: “A review of why it failed would be bound to find that pension architecture would be one of the problems. ISAs are popular because people engage with what is flexible and early access [to pensions] fits with that.”
Early access to pensions
As part of its most recent review the government considered allowing pension savers to have early access to their pensions. Such a change would have been closely regulated but nevertheless would have been popular with some pension savers, especially during such a tough economic period.
However, the idea was dismissed, with many saying it would be unfair to offer early access to a fund which has benefited from tax relief.