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COVID-19: How surge in consumers’ savings withdrawals exposes key flaws in British system, say experts

*Problematic workarounds emerging as more Britons dip into pensions due to pandemic

*Long-term savings not meant for emergency savings accounts ─Pension specialists  

Web Editor | ConsumerConnect

Britons trying to plug the financial holes inflicted by the distressing Coronavirus disease (COVID-19) are drawing cash from long-term savings that are not meant to be used as emergency savings accounts.

It was learnt that pensions experts are now warning as punitive charges prompt an urgent change in the law.

Agency report says John Glen, British Economic Secretary to the Treasury, recently announced a minor-sounding tweak about an all-but-ignored kind of government-backed savings plan.

It is set up so that subscribers get a 25 percent top-up, paid monthly, on up to £4,000 of savings each year, to help them either save for their first home or later life.

Experts say if you want to take the money out for a different reason, you will be charged 25 percent of everything you take out as a disincentive.

With everything else going on, the change would be an easy thing to miss – the removal of a five percent withdrawal fee, report stated.

And it’s a sensible move in the circumstances. But as the nation scrambles for short-term cash, putting pressure on a system designed to facilitate traditional, predictable and linear long-term financial planning, the cracks are starting to show, said the analysts.

Rachael Griffin, financial planning specialist at wealth management firm Quilter, who describes them as a muddled idea to begin with, said: “[Lifetime Isas] were originally set up as a halfway house between a retirement savings vehicle and an Isa product for first-time buyers.

“We’re cashing in tomorrow to deal with today… and paying £600million too much tax along the way.”

Report further indicated that a larger picture of problematic workarounds is emerging as more people dip into their pensions as a result of COVID-19.

Analysts say it is a sensible move in the circumstances. But as the nation scrambles for short-term cash, putting pressure on a system designed to facilitate traditional, predictable and linear long-term financial planning, the cracks are starting to show.

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