Proposals for savers to be able to take some money from their pensions early were made by the Resolution Foundation last year

Some pension experts have suggested that workers could be allowed to raid part of their pension savings before they retire under plans to be unveiled by the Government next week, according to reports.

A set of pension announcements is expected on Monday, and some experts believe the Government could look into the creation of pots within pensions that could be accessed early.

Bar in certain circumstances, you can usually only access your pension once you reach 55, though this will rise to 57 by 2028.

Under proposals experts say could be considered, people would be able to access £1,000 several years before this age.

At the moment, it’s not clear how likely they proposals are to come to fruition – and the Department for Work and Pensions (DWP) says it won’t comment on the speculation about the idea.

But here’s how they could work if they were to be implemented, and what the pros and cons would be.

How the proposals could work

Last year, the Resolution Foundation think tank, which was then run by now pensions minister Torsten Bell, proposed a similar scheme.

In a report, it called for auto-enrolment contributions from pensions to be gradually increased from 8 to 12 per cent, with employer and employee contributions matched at 6 per cent each.

It said these 12 per cent contributions should include a 2 per cent contribution into an easy access “sidecar savings” scheme of up to £1,000, with contributions above this level going into a pension pot.

The Resolution Foundation also proposed allowing savers to borrow the lesser of £15,000 or 20 per cent of the value of their pension pots.

What would be the pros of the idea?

Mike Ambery, retirement savings expert at Standard Life, said any review into retirement savings “should include areas that are important to consumers which is buying a first home, being able to retire securely and to cope with cost of living crises and day to day needs such as emergency funding”.

Proposals that would allow people to access retirement savings early could help those who need emergency cash.

More than one in three people (36 per cent) do not have a rainy day fund, according to research from Compare the Market, and this would allow those people to have funds that are easily accessible.

“There’s a lot of people who don’t have a very substantial amount of emergency savings. So, this allows people to build that pot fairly automatically, certainly if you default them into saving it through the employer provision and it sits alongside you your pension,” said Joe Dabrowski, deputy director of policy at Pensions UK.

Experts also believe that such a plan could encourage people to put more towards their retirement.

“People might be encouraged to increase their contributions to a pension if they had the reassurance that a small amount remains accessible for emergencies,” explains Jamie Clark, retirement specialist at Quilter.

What would be the cons of the idea?

On the flipside, the main issue with the idea, according to experts, is that it could reduce the amount that people save for retirement.

“There are obvious risks to such a proposal, primarily in that diverting some pension saving to a liquid account will impact the amount saved for retirement,” explains Clark.

He also said that adding more complexity to pensions could confuse some consumers.

“They have always been long-term savings vehicles, and by having the option to access money sooner, it may negatively impact the disciplined approach required to build adequate later life savings,” he said.

Dabrowski pointed out that there could be operational difficulties too.

“How do you make it work alongside your pension offering with your employer? You might have to partner with a bank or another financial supplier to do it. There might be some rule changes needed for pension funds to be able to provide it fully by themselves,” he said.