Government could save the economy with £65bn pension cash

Interesting idea.

I dont see a downside, can anyone else...?

Of course there is a downside. The purpose of encouraging people to save for their pensions is to give them pension income so that they don't need additional help over and above their standard pension. If they are allowed to splurge their pension pot in advance of retirement the whole point of encouraging private pensions disappears. No wonder the pension industry, which does well for itself (if not for the people whose money they invest,) out of the incentives the government gives want to pension saving would like to turn it into normal saving but this is special pleading and should be ignored.

I find it quite ironic that it was only April this year that the age to access pension benefits was increased to 55, and we are already talking about reducing back to 50. That said, many life companies tried to induce those individuals between 50-55 pre-April 2010 to take their benefits before the age limit increased - it did not seem to be a great success, and does not appear to have done much for the economy. Any life companies care to comment otherwise?

Well I'm not sure I buy the main theme anyway?

Where is the money now!

Invested I guess?

(unless its in a non funded scheme in which case the Government ( as it has the ultimate liability for these!) would need to borrow it)

Why would it do more good in the hands of the pensioner who might well spend it on Wine, Women and Song (and foriegn holidays) and then squander the rest!

I suspect QE2 would be more effective!

You get ripped off on the way in with 1.5% charges and on the way out with 3% of the fund annual charges. 30% of my current pension payout disappears in fees and 40% in taxes. Thankfully not much of my income is dependent on my depleted pension savings. If I had my time again think I would be better of buying pork bellies and freezing them.

interesting..........

Good for the economy today I guess but people spending their retirement monies before retirement I am not so sure. They can take the PCLS from age 55 now but this is not encouraged by advisers in the main unless there in a specific need or 'want' fro the PCLS. Sounds on this basis the govt would want to encourage it.

Either way it could be good for now and bad for later or vice versa?

Sorry to be tiresome but a trillion is a thousand times the number shown in your article - which is a billion. And to be even more pernickety, we're talking the American definitions as the English billion is a thousand times the American one.

Might well help the economy but pensioners could live to bitterly having taken cash early. - unless they invested it wisely.

By the way, unless I'm mistaken, Kevin LeGrand has missed three noughts off his trillion. Surely a billion is 1,000,000,000 and a trillion is 1,000,000,000,000.

I agree totally with David Roberts.

Allowing tax free lump sums to be drawn early is absolutely crackpot and an immensely damaging idea which could make already poor pensioners even poorer by "blowing" money saved and protected for retirement.

The suggestion that it would make people save more is wrong, and confusing the pension and saving schemes objectives.

Gordon's damaging stealth tax on Pensions should be reversed as soon as possible (now $100 billion + since 1997). If the huge deficit does not allow this immediately, then even a statement of intent would help.

If people want to save in an unrestricted tax free environment then they already have a generous ISA allowance of over £10K p.a.. The issue of saving more is really a separate one, but it would help further to have the tax relief on ISAs restored also when possible.

I should have said "full tax relief on all ISA income" in last sentence in my posting above, sorry.

How about using Pension funds to kick start the housing market.

When considering A day changes the Govt originally thought to allow residential property as an investment.

The great and good said that this would further stoke the overheated housing market. We ain't got that problem now!

We are now in a massive house price slump. So how about a government change of mind and allow residential property to be held by self invested pension funds, SIPPS?

My daughter has split up and would love to sell her 2 bed flat but there is precious too few first time buyers with a 20% deposit

I would love to buy my daughter's flat from her with my pension fund. I would have no need for a mortgage. The property despite the current slump in prices would still be an excellent long term pension investment and the rent an excellent long term income.

I bet there are thousands of personal pension holders who would love to do the same thing.

No point in taking the PCLS just to reinvest it. It will grow in the pension pot tax free (apart from non reclaimable tax on dividends) whereas if it is taken out and reinvested it would be potentially subjected to income tax and CGT.

Trustees of Final Salary Pension Schemes will see a problem. If a scheme is funded to a level where each person has to be 65 to draw their pension, any person drawing early will deplete the fund of money which is invested to achieve their NRD (normal retirement date) and all other people in that scheme yet to reach 65. FSPS's are already an endangered species and this could make them extinct.

Anonymous2 I completely agree with your comment, it seems blatantly obvious to me that in order to provide a boost to the housing market and enable first time buyers to get on the ladder the government should: -

1) enable Pensions to hold residential property (or a proportion thereof, as in an equity share) to enable the buyer to use their pension as a deposit and to mortgage the balance outside their pension.

2) Offer travel to/from work to be tax-free. London's property prices are so expensive that buyers, esp. first time buyers, are out of the market. In order to encourage investment outside of London, people need to commute and look to buy lower cost-properties (london to Peterborough, grantham etc - 60-90mins train). Downside is cost of travel which if subsidised by tax would make it much more attractive and the north-south divide gap would start to close as London incomes are spent elsewhere....

I strongly disagree with anon2 over housing. We are certainly not in a house price slump, just the reverse unfortunately. House prices are way above the long-term average and proper affordability ratio. Until all subsidies such as the 3-year tax fiddle and buy-to-let are curbed, then the present situation where our young people cannot afford houses will be perpetuated.

This another argument for not allowing lump sums early, some of that cash would only find its way to further prop up the housing market.

On the face of it it seems like a good idea.

Why not go a stage further and let Pension Trust Funds invest in areas which are currently not allowed to be invested in under HMRC rules such as being able to buy housing stocks.

Woops! Sorry about the mixup with the figures in the paragraph under LeGrand's pic. Corrected now.

Investing all this money would be great for the economies of China, Korea, Japan, Germany and France as they would then sell us more tv's, dvd recorders, cars etc making the Uk even poorer in time.

Ipaid a small amount into a private pension, understanding it at the time but 30 years later I am totally ignorant with regard to pensions all I do know is that I wish I had never done it. I have a little to much over the limit for taking the whole lot out, unfortunately. Having seen the forecasts for my annual pension go down and down, I know that I could get a better income by investing it myself. I wish this government would raise the limit to pension pots of 25000 and under and let me have my money back!

This is a good idea but needs taking much further. Lets have a root and branch reform of state controls on pensions. ALL the money in a pension pot belongs to its owner - not the state or the pension fund.

These savings should not be ringfenced in time unless they have a guaranteed interest rate applied to them - try and find a 40 year fixed term savings account!!! The entire pension pot should be released as savings whenever the saver wants access to it - and after tax is paid its then up to the saver to decide how to use it.

As for the public sector unfunded schemes - TS I say. They will just have to wait to get paid out when they get old enough.

Why dont the government allow people to draw whatever % of their pension pot they want on the understanding that for every percentage they draw over the 25% they will get their State Pension reduced by the same percentage.

"..... who could spend it on goods and services and thus support the economy." WRONG

I would first pay off debt, then re-invest the rest tax free as ISAs over next 2/3 years togive me tax free income to draw when retired. No one wants to spend when they are worried about pension income and future levels of taxation -and inflation. This 25% tax free to splurge is a relic from the days when most an annuities that were available would provide for you very well for the rest of your days.

I interept this as 'Live now and have nothing or alot less tomorrow', just to prop up a failed boom, and delay the bust for another day.

Total stupidity. Lets get the correction over and done with and we can go forwards as a nation. Any other way is regressive.

I am increasingly worried that this Government is acting as stupidly as the last one and that is a beyond belief. They are back tracking on a regular basis, and appear to lack the balls to do anything radical.

Not Impressed so far David and Nick!!

It is not a 'Live now and have nothing tomorrow' scenario.

It would not all be spent but hopefully would be invested wisely to bring in a little extra income to spend on the odd luxury or a little more heating and have something after death for the grandchildren to use as a deposit etc

I believe this is the daftest idea yet. When they reach the age they really need their pension pots that they have just been persuaded to spend are the so called experts suggesting the idea going to put their money where their mouth is and pay the pensions that those following their advice should have available to them in old age?

At the age of 66 my spending on wine would probably eclipse the amount spent on women and song.

I have believed for some time that pension funds should be made available before retirement, but only for a narrow range of applications such as mortgage redemption, educational fees and medical treatment. I would be against allowing access to the funds for routine consumption aimed at providing a short-term stimulus to the economy.

My proposal is that scheme members be allowed to borrow from their funds and should be required to pay interest to the fund and repay the capital to the scheme before retirement, enforced by the scheme trustees. Such interest payments should not attract tax relief and should not form part of the member's annual contribution allowance. Needless to say, the scheme would not pay tax on the interest received.

I should point out that those who want immediate access to their retirement funds at any time can do so by avoiding pensions altogether and investing through ISAs.

I think that those that have saved carefully for their old age will think twice about withdrawing the lump sum and squandering it; at whatever age the government allows them to.

If the governmant want to get people to invest in a pension, they have taken the first big step, which is to allow them to keep the pot invested past the age of 75 so that the fund does not become forfeit to the bloated pensions industry. The second step is to change the rules on annuities and allow them to be invested in better bonds than currently allowed. Annuities are invested in what appears to be the worst value set of bonds known to mankind. They pay very little more than the rate of interest and you are locked in for life. Indeed, a voluntary annuity pays a better rate, so it is clear that it is possible to get a better return in a free market situation.

And just to be really controvertial, why not allow the money to be applied to a government national savings scheme? There it would be at a % over inflation, would vary with interest rates (only able to go up from here!) and would help reduce govenment borrowing from other sources.

Think twice. Every 5 years pension amount approximately doubles which means the pension would double and tax free amount would double. Reducing it by 5 years would halve the amount. Is this your retirement?

Ludicrous. If people are going to save more, as claimed, they will consume less. That they may dip into their savings from time to time will merely ameliorate the switch to savings. That said, it is what the UK needs. The idea that increased consumption will rescue us is barmy. Our garages are already full with junk made in China. Increasing consumption merely increases Chinese jobs. When did you last buy anything for your home that was made in the UK?

Not a good idea, people will spend their money now, and and be poor as pensioners.

Im only 45, but have a 900k pension pot... trouble is im practically bankrupt and literally just about to go to the govt for housing and tax credits...I am not a homeowner, and have no tangible assets other than my pension, built up from a no of years in telecomms, and some wise SIPP investments over the last 18 months...

How on earth could it be a bad thing to allow me to get the money needed to clear my debts, stave off the need for benefits (saving all the other taxpayers money), and perhaps even buy a house... and I could still have a decent pot of say, 600k left... nobody loses out, the govt receives tax, and saves about 10k a year by not paying me benefits...

its a no-brainer...