Pensions `leakage` risks retirement income, warns Mercer
By myfinances.co.uk staff
Giving people the option of tapping into their pension savings early can be a politically popular move, but it can also undermine the provision of adequate retirement income, it has been claimed.
The Conservative-Liberal Democrat coalition has committed itself to examining the possibility of giving people greater flexibility in accessing their pension funds.
However, consultancy Mercer warned that in other countries where this is already allowed, the money withdrawn is rarely paid back in full.
Its study of public and private sector pension arrangements in 11 nations discovered that so-called "leakage" led to problems with providing an adequate retirement income in Canada, the US, Chile, the Netherlands and China.
The company warned that in cases where pension funds ran out because of early access, the financial responsibility for these individuals passed back to the taxpayer.
Bruce Rigby, Mercer's global retirement strategist, said: "The problem arises because most people underestimate how much they will need for their retirement or how long they will live."
The government is also looking to abolish the obligation to purchase an annuity at 75 and to reinstate the earnings link with the state pension from April 2011.
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