The Financial Conduct Authority’s (FCA) chief executive has urged the UK to engage in a “contentious debate” about permitting workers to tap into their pension pots earlier in life.
Speaking at the Resolution Foundation’s “Unsung Britain” conference in London yesterday, Nikhil Rathi argued that retirement savings could play a greater role in strengthening financial security for those on modest incomes, arguing that funds from pension pots could be used for housing deposits.
The financial services regulator’s boss explained: “We have an opportunity as pension reforms are taking shape to think very holistically about how these parts of the system fit together.”
Mr Rathi also floated the idea of granting limited access to pension funds for emergency situations.
Pension system ‘reforms’ could see Britons access their retirement savings early
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“Being able to access £1,000 from your pension pot for an emergency could take some pressure off,” he noted, citing similar schemes operating in South Africa, Singapore, Turkey, the US and New Zealand.
The FCA chief’s remarks came as the Resolution Foundation published research revealing the precarious financial position of millions of British households as part of its “Unsung Britain”.
According to the think tank’s findings, six in ten families in the bottom half of the income distribution do not possess sufficient savings to cover three months of earnings
The report stated: “The fear that ordinary mishaps the fridge or cooker conking out, say could lead to debt or disaster casts a pall over the experience of day-to-day life.”
Analysts are sounding the alarm over the property crisis
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PAProperty ownership among these households has also declined sharply over the past three decades.
In 1994-95, roughly 30 per cent of lower-income families held a mortgage, but this figure had dropped to just 17 per cent by 2023-24.
As it stands, the UK maintains relatively strict regulations governing early access to pension savings.
Workers generally cannot withdraw funds before reaching 55, and those who do so outside narrow eligibility criteria face a punitive tax charge of 55 per cent.
FCA boss Nikhil Rathi has called for a big change to pension rule changes
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Qualifying circumstances include terminal illness or permanent incapacity to work. Mr Rathi pointed to several nations that have adopted more flexible approaches to retirement savings.
He shared: “”A number of other countries already do this South Africa, Singapore, Turkey, the US, New Zealand.”
On the question of using pensions for property purchases, he acknowledged the sensitivity of the issue whilst maintaining it deserved consideration.
The Resolution Foundation’s report painted a broader picture of financial strain among the 13 million working-age families it termed “Unsung Britain”.
How much do British families have saved?
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RESOLUTION FOUNDATION
Energy debts have surged dramatically, with 1.6 million gas customers and nearly two million electricity customers now in arrears. The average amounts owed have roughly doubled, reaching £1,300 for gas and £1,100 for electricity.
Council tax arrears have similarly ballooned, climbing from approximately £4.6billion to £6.8billion in real terms over the five years to 2024.
The think tank proposed several measures to ease pressures on struggling households, including shifting more government policy costs into general taxation to reduce energy bills.
Resolution Foundation researchers also called for developing better data systems for targeted support, improving transport affordability through more focused bus pass discounts, and tasking the Competition and Markets Authority (CMA) with investigating markets failing consumers.