Sunday, 29 March 2009
Freeing up much-needed cash
Just had a few minutes on the BBC's politics show at lunchtime to float an idea that could make a real difference to households threatened with repossession or in other financial need.
This coming year, it is expected that around 70,000 families could lose their home through repossession. Many of the same households will have one or more member who has a pension scheme which will eventually pay out a substantial tax-free lump sum on retirement. But under present rules, that money cannot be touched. On retirement it can be used for a world cruise, to pay off a mortgage, for home improvements or for anything else you fancy. But just when you need it - now - it can't be touched.
This seems crazy to me. We know that most people take up the opportunity to draw up to a quarter of their pension fund as a tax-free lump sum on retirement. This is money that, in general, doesn't get turned into a pension at all. So allowing people to access the money early would in general not undermine peoples' future pensions. What it could do is allow them to stave off repossession or - frankly - spend their money on something else that would boost the economy such as buying a car or putting down a deposit on a house. At a time when the Governor of the Bank of England is warning that the Government can't afford to borrow yet more money to stimulate the economy, this would be a way to put billions into the hands of households that need it.
There are lots of details that would need to be worked out (and which we will cover in a pamphlet on this theme to be published next month). For example, you would probably need a cap to make sure this didn't just turn into a big tax avoidance scheme. You would also need rules about how often this could be done, how the pension funds would be compensated for this increased complexity and hassle and so forth.
But the more I think about this idea, the more I think it could make a real difference to people, boost the economy now, and all without spending a penny of taxpayers' money - not a bad combination!