Aviva says - give people early access to pension savings

Article date: 7 October 2009

  • Recommendation is part of Aviva proposals to encourage retirement saving

Aviva – the UK’s largest insurer with seven million life and pensions customers – is proposing a series of reforms to the pension system to make retirement saving more flexible, relevant and attractive to UK savers.

Aviva research into consumer attitudes to saving and retirement has identified widespread confusion among the population when planning for retirement. Building on this insight, Aviva proposes the following:

  • Allowing early access to pension savings before retirement
  • Introducing flat-rate tax relief on pension contributions
  • Replacing pension credit with higher basic state pension
  • Including state pension statements with personal accounts
  • Introducing alternative workplace savings plans.

Encouraging private savings
Nearly half (47%)1 of surveyed pensioners in their first year of retirement said they wished they had saved more for retirement. To make it easier to save, Aviva proposes the following reforms:

  • Allow early access to pension savings: Tying up cash until retirement is a significant barrier to pension saving. Nearly all (85%)2 of people surveyed manage their finances within a time horizon of one year or less.

    Aviva proposes that pension savers are allowed to withdraw a portion of their pension savings before retirement – removing a psychological barrier to long-term saving. To ensure retirement plans of pension customers remain protected, Aviva proposes this change is introduced with a set of simple rules developed with consumers, the industry and HMRC.
  • Harmonise tax relief: UK customers are aware that pension savings do enjoy tax benefits, but nearly all (83%)2 people surveyed do not understand how tax relief works for them.  Aviva proposes that a harmonised rate of tax relief (for example 30%) is adopted to replace the confusing higher and lower-rate tax relief system. This change would benefit and encourage the 85% of people who are basic-rate taxpayers, and could add more than 14% to the value of their pension fund at retirement. A 22-year old on a starting salary of £20,000 could have an additional £47,000 in their pension fund at age 65.

    The change would be neutral for many of the 15% of people paying higher-rate tax at retirement. In many of these cases, the loss of additional tax relief in later life (ie down from 40% to 30%), would be compensated by the enhanced tax relief earlier in life (ie up from 20% to 30%). See notes to editors.
  • Introduce alternative work-based savings plans: Many young people do not recognise the benefits of saving into a pension when retirement can be more than 40 years away. To start a savings habit among the young, Aviva proposes employers are encouraged to provide shorter-term work-place savings for those under 25 as an alternative to pensions (such as employer-sponsored ISAs).

Simplifying the state pension
Some 63%2 of people surveyed believe the basic state pension will be their first or second source of retirement income. But more than two-thirds of people don’t know or overestimate the value of the state pension. Aviva proposes:

  • Abolish pension credit and introduce a £130 basic state pension for all: The pension credit, introduced in 2003, has supported many in retirement but the system has flaws. Only 59%4 of people approaching retirement are aware of pension credit and it is estimated that one-third of those entitled are failing to claim5

    Aviva proposes that pension credit is replaced with a £130 basic state pension for all, funded by new national insurance contributions for those above a certain income in retirement.

    The revised system would be easier to understand, help those most in need and be revenue neutral to the Government (plus arguably removing the approximate £200m it currently costs to administer pension credit every year.6)
  • Introduce an annual state pension statement with Personal Accounts: The Pension Service responds to 400,0007 requests for individual state pension forecasts every year - covering about 1% of the working population. Aviva recommends that annual statements for Personal Accounts – a Government-sponsored workplace pension available from 2012 – include a forecast of the individual’s state pension benefits. A yearly state pension forecast sent with Personal Account statements will powerfully illustrate the impact of not saving enough for retirement to an expected nine million new customers.

Paul Goodwin, head of pensions at Aviva, said: “Aviva wants pensions to be built around the needs of the modern, more flexible workforce, not the workforce that existed 30 years ago. Our proposals will make pensions saving simpler, more attractive and encourage people to save during their working life for the time when they are retired. They simplify pension rules and introduce much-needed flexibility when it comes to accessing money saved into a pension.”


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David Gwyer                                      
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Notes to editors:

Worked examples – How harmonised tax relief affects savers’ pension fund at age 65

Starting salary at age 22 (£)

Size of pension fund under current two-tier tax-relief system


Size of pension fund under harmonised tax relief system


Difference (£)

Difference (%)






+ 23,629


+ 14.3%





+ 35,442

+ 14.3%





+ 47,255

+ 14.3%





+ 23,983

+ 5.35%





- 4,583

- 0.8%


Assumptions used in calculations:

  • Tax relief harmonised at 30%.
  • Age at which customer starts investing in pension, 22
  • Age at which customer’s real salary stops increasing, 55
  • Real salary increase each year, 2%
  • Percentage of salary contributed to pension, 10%
  • Inflation, 2.5%
  • Return on pension investment, 7%
  • Annual management charge on pension, 1%
    • Basic-rate taxpayers use the harmonised relief to increase pension payments rather than take-home pay.
  1. Aviva in-house research of 1,000 people in the UK who have retired in the past two years, August 2009.
  2. Aviva in-house research, in conjunction with ICM Research, of a representative sample of 1500 18-to-64 year-olds, September 2009.
  3. Harmonised Tax Relief calculations and assumptions – see table above
  4. Syndicated “At retirement Survey”, in conjunction with Marketing Sciences, of 1,100 50+ year olds, August 2009
  5. Age Concern: www.ageconcern.org.uk/AgeConcern/pension-credit.asp
  6. House of Parliament, Hansard, July 2008: www.publications.parliament.uk
  7. House of Parliament, Hansard, March 2009: www.publications.parliament.uk

About Aviva
Aviva, the international savings, investments and insurance group, is the world’s fifth largest insurance group, serving 50 million customers across Europe, North America and Asia Pacific. 

In the UK, Aviva is a leading provider of life, pensions, investment, general insurance and health products to more than 20 million customers. Aviva also provides roadside assistance through the RAC. Products are distributed through a number of channels including IFAs, brokers, corporate partners and direct to customers via the internet.

Aviva's UK Insurance business has a market share of around 15%, making it the largest general insurer in the UK. The business is focused on insurance for individuals and small businesses.

Aviva's life and pensions business in the UK has a total market share of 12% and a top three position in its key markets of savings, protection, and annuities.

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