Laws introduced six months ago to give savers free access to their retirement funds from the age of 55 should be at least partially reversed, according to a new report.
In the latest global rankings of international pension regimes, compiled bi-annually by consultancy Mercer, the UK's score has fallen from 67.6 out of 100 to 65.0. The Daily Telegraph says this means "it just managed to hold on to its 'B' grade", which indicates "a sound structure, with many good features but some areas for improvement".
One suggestion proposed by the report's authors was to restore "the requirement to take part of retirement savings as an income stream". Mercer had previously praised the UK's insistence that three quarters of savingshad to be used for providing an income, with the remainder available as a tax-free lump sum.
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The system had become increasingly unpopular with savers, however, and savings rates were in decline. Annuities – the default option for most – have been offering poor returns for years. The financial regulator has previously criticised the market, which it branded "disorderly".
Under the new system, when a saver reaches the age of 55, he or she can access the entire fund, either as a cash lump sum or through 'income drawdown', which effectively turns a pension pot into a bank account. However, three-quarters of the fund is liable to income tax, and those who access their fund can make reduced tax-free contributions in the future.
Evidence from the first three months of the reforms, compiled by the Association of British Insurers, which represents most pension funds, revealed that £2.5bn had been taken out under the new rules. Around £2bn of this went to people under the age of 65, The Guardian says, while in most lump sum withdrawals the whole pot was taken out.
Typically, those who have withdrawn funds so far have had very small pension pots. Total funds withdrawn account for around one per cent of all pension savings.
