Steve Beasant

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?

In the US, pension savers can access their savings. The system allows people to take loans from their pension schemes. Under the scheme, the loan must be repaid over five years with interest.

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 Liberal Democrats plans is for people’s pension savings to help them avoid repossession.

Liberal Democrat Shadow Work and Pensions Secretary, 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.”

Steve Webb’s 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.”

Steve Webb said anyone taking an early lump sum would need advice.

“But it is your money and it should be your call,” Steve Webb 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.”

Steve Webb 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.