A rethink of the trivial commutation rules to help pension savers reaching retirement with small funds would be a welcome follow-up to last week’s good news of rising pension saver numbers, according to Stephen Lowe of Just Retirement. But he said that any solutions for smaller pots must still recognise most people’s need for income through retirement.
“We are starting to see some ticks in important boxes on the pensions ‘to do’ list and trivial commutation is up there as a priority,” he said. “Auto-enrolment seems to already be making a difference with last week’s announcement of the first rise in the number of pension savers since 2006. Even so, half of employees still aren’t active pension savers and many of those that are engaged will need to increase contributions if they want a decent income in retirement.
“Auto-enrolment is an important lesson about harnessing inertia to encourage good outcomes. It is now easier to have a pension than to go to the trouble of opting out. The same idea needs to be taken into the ‘at retirement’ market so that people find it easier to shop around and take advice about their retirement income than to accept a poor deal from their current provider.
“Forward-thinking providers have been bringing down the cost of dealing with small pension pots but a problem remains. Pensions exist to help people secure a flow of income when they no longer work so care needs to be taken with the trivial commutation limits to ensure that principle remains intact. Hiking the limits too far would return cash to many people, increasing the chance it will be spent in the short term rather than helping to sustain them through retirement. The rules need to strike a balance between making life easier and ensuring people can’t squander significant sums and then fall back on State support.
“It would be great to see the Chancellor tackle these issues on Wednesday. We need those at the highest level to keep up the focus on better pensions if we are going to make sure all the new people who are starting to save don’t get to retirement and think it was a waste of time.”
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