The Government could raise billions in the short term and fire up the economy if millions of “pointless pensions” could be encashed, according to pensions expert Angela South.
Ms South, managing director of Magna Wealth Management, said there were billions of pounds sitting in pensions that are too small to give individuals a decent monthly income in retirement.
“These ‘pointless pensions’, as I call them, contain sums that will never fulfil the reason behind saving in a pension – to provide an income in retirement.
“Pension pots of up to, say, £50,000 are too small to make any significant difference to someone’s standard of living, and many people would be better off with the money contained in them now,” she said.
For example, a £50,000 pension pot would purchase an annuity giving £133 a month, after taking the 25 per cent pension commencement lump sum of £12,500.
She is proposing that pension pots of up to £50,000 could be encashed with the Government taking an immediate tax charge of 25 per cent – which is an average of the amount of tax relief given on premiums.
“There are literally millions of small pension pots that have been built up over a number of years in a job, but many are too small to really matter,” she said.
“Annuities are going through the floor, so the income from small pensions pots is very poor.
“By paying 25 per cent tax back to the Government – an average of the tax enhancement to the pensions given when people were contributing – the Government isn’t losing.
“Individuals can encash pension pots under £18,000 under what is called ‘triviality’ but many people have one, two or three pensions that may not amount to much individually, but add up to a sum towards £50,000.
“If people were able to access these ‘pointless pensions’ now, the Government would get an immediate boost to the Treasury, but more to the point, the money freed up would be used for a host of different reasons.
“Some people might use it to clear their mortgage, or other debts such as loans and credit cards, but others might spend the available cash on domestic goods or cars, giving an immediate lift to the high street and the retail trade in general.
“This is a very simple and cost-effective way of boosting growth without materially affecting the Government’s austerity measures – in fact it helps lift the economy upwards while the cuts are taking expenditure in the other direction, thus exaggerating the chances of economic recovery in a much shorter timescale,” she pointed out.