Pensions are for your retirement, not for a rainy day

181029-pension — There's no point saving into a pension if you're going to spend it early

Budgets bring all sorts of odd ideas out of the woodwork. Ahead of this week's we saw pretty much everyone involved in the financial industry to produce a view of some kind on the UK's pensions system allowances up, allowances down, rates up rates down, freedoms up, freedoms down.

But possibly the maddest of the lot (there is always competition for this) came from Scottish Widows as part of its annual Women and Retirement Report. It reckons that the fact that you can't take money out of your pension pot until you are 65 makes women less likely to save into them than otherwise. On Scottish Widows' numbers, 40% of women are put off pensions because they can't get the cash out in a crisis. Only 24% of men feel the same. The solution? According to Scottish Widows it is to build in "greater flexibility." It isn't the only one thinking this way.

If part of the pot could be accessed "this could make pension saving more attractive" says Steve Webb, director of policy at Royal London, another pensions provider, in the Mail on Sunday. He might be right, but it would do something else as well; it would make the pot in question not a pension.

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The whole point I mean really the whole point of pension savings is that you can't access them until you are of retirement age, the idea being to make sure that you don't use them up along the way and that you do have something to use to finance your old age. That's why we give generous tax relief to pensions and why you can't lose them if you go bankrupt, for example.

You could even argue (and I would) that we let the healthy access their savings too early: if most people aren't retiring until 65 and are likely to live until they are 90, why allow them to spend their retirement savings in their 50s?

The other thing to bear in mind here is that the UK has a remarkably generous savings system and within that there is a fabulous product available for anyone who wants to get some tax relief but also withdraw money at will. It is the Isa. You can even take money out of this without losing its tax status inside your allowance as long as you return it within the year.

Isas and pensions are both great products. But they do different things for people at different points in life (ideally one should have both). There is no reason to change that no reason to make a pension more like an Isa. The only people who might think there is are likely to be those in the pensions industry after a little of the Isa industry's business. One lot Philip Hammond really shouldn't listen to.