The age at which members can access their pension pots should be increased, according to a white paper, but some experts say those in ill health should not be held back from drawing their cash.
The risk of retirees running out of money has been flagged as a concern for both savers and employers.
Earlier this year, government-backed mastertrust Nest identified this as one of the key risks facing UK pensioners following the introduction of the defined contribution flexibilities in April.
Eversheds' 10 recommendations
Work to rebuild and maintain the consensus around the UK's long-term pensions strategy
Establish a new independent pensions commission to clarify the long-term strategic aims for UK pensions policy and to help rebuild to consensus
Consider the case for increasing the age at which individuals can access their pension savings flexibly
Ensure the successful rollout of auto-enrolment to workers of small and medium-sized employers
Assess the case for raising the minimum auto-enrolment contribution rate by the end of this parliament
Ensure savers get value for money during decumulation
Facilitate the establishment of an online pensions dashboard to help people manage their pension savings
Build alliances within Europe to oppose the introduction of the holistic balance sheet and to ensure any new EU pensions regulation works for the UK and respects the diversity of pension systems within the EU
Help people understand how much they need to save for their retirement
Move away from micro-managing the governance of workplace pension schemes
The paper, entitled ‘Rebuilding the consensus’ by law firm Eversheds, lays out 10 key recommendations for the new government on pensions policy.
One recommendation calls on the government to “consider the case for increasing the age at which individuals can access their pension savings flexibly”.
Francois Barker, partner at Eversheds, said such a move would help inculcate a more realistic idea of when people can afford to retire.
“The idea behind this was, if you think about state pension age as going up to 67, and the cash out age is about 10 years before that, [it] gives the impression 57 is an okay age to cash out,” said Barker.
Depleting pension savings too early could affect whether people can afford to retire, negatively affecting both the saver and their employer, who subsequently may be hampered in their ability to promote younger staff.
“That’s a risk some of the more visionary employers are starting to realise,” said Barker.
He added that the responsibility for determining what age would be suitable, or how it would be calculated, would rest with an independent pensions commission – the establishment of which is itself a recommendation made in the paper.
Some lawyers said raising the age at which members can access their DC savings as the state pension age rises makes sense.
Faith Dickson, partner at law firm Sackers, said: "It's a bit of an acknowledgement that a lot of DC pots aren't going to be that useful to take people through their whole retirement. It's sensible to make people take them later in life to make them less reliant on the state."
Longevity risks
When announcing the freedom and choice reforms last year, the government stated the age at which people could access their DC savings would rise to 57 from 55 in 2028.
Darren Philp, head of policy at mastertrust The People’s Pension, said it was “fair” the age should increase as life expectancy rises.
To my mind it’s about providing income for people in later life
Darren Philp, The People's Pension
“To my mind it’s about providing income for people in later life,” he said.
However, Philp added the rules would have to be assessed to ensure people were not prevented from accessing their savings if they faced health problems, adding the access age should remain lower than the state pension age.
He added: “You need to be aware of the fact different regions have different life expectanc[ies].”
Holistic balance sheet
The paper called on the UK pensions industry to build alliances with other European countries to “oppose the introduction of the holistic balance sheet and to ensure any new EU pensions regulation works for the UK…”.
Proposed by the European Insurance and Occupational Pensions Authority, the holistic balance sheet – which could apply funding requirements similar to those of insurance companies on pension schemes – could be disastrous for UK defined benefit schemes, Barker said.
“It could result in £150bn [of aggregate deficit] being added to the UK’s DB system,” he said.
Anne Marie Winton, partner at law firm Nabarro, said schemes were not yet paying attention to how the requirement could affect them.
“It’s part of the category of ‘too difficult to think about’,” she said.
