Schroders and the Pensions Management Institute have called for flexibility to the existing automatic enrolment pensions framework to allow individuals to use funds towards house purchases.
In an announcement today (October 8), the two firms revealed proposals for their Lifetime Savings Initiative (LSI) which was designed to highlight the challenges facing UK savers.
One of the two proposals was the National Lifetime Savings Plan (NLSP) which would seek to extend the existing automatic enrolment pensions framework to make it more flexible and incentivise employees to save even more.
It would allow savers to draw on their pension savings early in order to contribute to the deposit to buy their first home or to help address serious financial problems.
However, the firms noted that the use of the early access, before a member’s normal minimum pension age, should be allowed for only these two purposes.
Anyone contributing through AE, or a suitably approved retirement savings product, could participate in the flexibility of the NLSP.
Withdrawals would only be allowed on retirement savings from contributions in excess of the value of the statutory minimum – currently 8 per cent of qualifying earnings.
James Barham, executive chairperson at Schroders Solutions, said: “Pension saving needs to change and it is in this context that we warmly welcome the UK government’s wide-ranging pensions review.
“But it is also becoming clearer that for many people, looking after themselves and their loved ones through their working life, and into retirement, is about much more than pensions.”
Barham said when pensions freedoms are taken into account, the UK’s long-term savings system is unusually inflexible.
“We think this provides an excellent opportunity to develop a model that catapults us to a framework that is right for the UK and leads the world as a model of best practice,” he said.
Short term savings
The second recommendation from the firms was the creation of a National Short-Term Savings Plan (NSSP) which aims to support the creation of ‘rainy day’ funds.
This proposal, which works alongside NLSP, suggests that on a voluntary basis, all employers should provide the facility for employees to contribute to a “rainy day” savings product, if the employee agrees.
This would be a simple cash savings product, but some employers - who might be working with providers - may wish to offer a choice of products such as some in Isa or Lisa wrappers.
The firms said this improves short-term financial resilience directly, as well as helping people to save more and engage with their financial health.
Ruston Smith, chairperson at PMI, said: “The majority of the money that most people rely on to make ends meet in retirement is from their non-retirement savings.
“That’s why it is so important to think more holistically about lifetime savings leading up to and in retirement.
“Building short term financial resilience through a simple, accessible and trusted ‘rainy day’ savings fund, with the ability to allow more people to buy their first home, or get their finances back on track, whilst also contributing to long term savings for retirement is at the heart of this proposal – and strengthens financial resilience.”
