Give me access to my pension fund
Locking away cash in a pension for years without the chance to touch it for 40 years is turning many people away from saving for the long term.
Britain is facing a pensions crisis - with millions just not saving enough to cover their retirement costs, or not saving at all. So would being able to open your pension fund for emergencies help?
Daniel Barneslooks at the possibility of opening up a pension.
In the US, pension savers can access their savings. The 401(k) system allows people to take loans from their pension schemes. Under the scheme, the loan must be repaid over five years with interest.
However, there are fears by allowing people to touch their pensions they will just fall behind further still.
When people take a break from paying into their pension - as many are now doing in the recession - a year off can easily become two or three years off.
The Liberal Democrats have come up with proposals for pension savers to withdraw a tax-free lump sum from their pension fund - just as they are able to do at retirement - with a cap of £10,000.
At the centre of the Lib Dem plans is for people's pension savings to help them avoid repossession.
Lib Dem pensions spokesman Steve Webb says: "It is crazy to be repossessing the homes of people who are perhaps £5,000 in arrears when they already have more than this as a lump sum in their pension fund which they cannot touch.
"Allowing individuals to access this cash could help existing homeowners prevent repossessions and help first-time buyers find cash for a deposit, both of which would support the housing market."
His report into pension solutions denies allowing people to raid their pensions is irresponsible and states the impact on pension income in the long term would be limited.
"The Chancellor needs to overcome the Treasury's natural caution and think creatively about how pension assets can be used to benefit individuals and the wider economy."
Mr Webb said anyone taking an early lump sum would need advice.
"But it is your money and it should be your call," he said, explaining people should have "an informed choice."
However, he claimed the consequences were "not terrible" if someone took a lump sum at 40.
"If you spend £10,000 early on a deposit for a house, you are still saving," he says, while using money to buy a car if it is needed for work is a similar investment.
"We know people retiring spend a lump sum on things like a cruise, so why not a car at 40?"
However, he admitted there is a danger of being left with less funds in retirement.
Over the long term for pensions, the Lib Dem calls for changes.
"Over time there needs to reduction in means testing and a merging of different pensions such as basic state pension and state second pension.
"It is all very messy and complex."
He added giving people the option to access their pension funds would encourage some people who are concerned about tying up cash for so long, which could encourage those choosing whether to take up the option of the Personal Account pensions, which come into force in 2012.
Johnathan French, at the Association of British Insurers (ABI), reveals the trade body is working on its own plans - to be unveiled later in the year - for access to pensions to be allowed.
"We have been working on a concept of allowing some access before retirement as an incentive to build on savings.
"What we need to do is develop a policy that encourages more people to save more money for retirement.
"It is encouraging that really all the political parties are engaging with the issue."
However, he warned there needed to be "careful safeguards" to defend to long-term nature of pension saving.
He added many technical issues over tax and early access would also need to be investigated.
The key is to maintain the tax benefits of pension savings, while offering greater access that general savings have.
Otherwise, people may be tempted not to bother with pensions at all but rather look at other savings vehicles such as ISAs.
"ISA as a definite savings vehicle but they are not designed for the long-term as pensions are. They should be part of the savings mix and consumers need to be aware of the options available to them."
Ros Altmann, pensions policy adviser, explained opening up pension funds was a balancing act.
Maintaining a closed fund may raise returns, but opening them up may encourage more people to save for retirement. And by just knowing they can have access would encourage savings, even though many people would not dip into pensions in the end.
She explained the problem is young people are not prepared to lock away funds for the next 30 years.
"There are cases of people being repossessed but they have money in their pensions. If they had access it would help to protect them."
She explains the gains are psychological as people are more likely to save if they are able to get in touch with their funds.
"If you take money out of a pension there needs to be a penalty," she explains, with perhaps people having to pay back some of the tax relief.
In making pensions more open, she suggests linking up ISA savings and pensions, and perhaps seeing ISAs as a 'training pensions'.
"ISAs are still tax efficient, although not quite so much as pensions," she says.
"There is no easy answer. We are not saving as a nation and we need to change."
A further solution would be for not all pension savings to head into stocks and shares. Pension savers, Dr Altmann suggests, could have access to parts invested in lower risk bonds while funds invested in stocks and shares could be cordoned off.
"One bit you can get at and the other bit would be for the longer term," she said.
"It is a balancing act and in a way a confidence track. You could try to protect yourself on the downside with insurance, but this is not standard."
She adds a greater use of people's homes as an asset to cover pension costs.
She also calls for a simple state pension system, following the New Zealand citizen's or resident's pension scheme where a set pension provided at 70 or later to all people and their private pensions are on top without any means testing.
"It would be a simple and fair system and do away with administrative complexities," Dr Altmann said.
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