Giving people limited access to pension funds in times of need would encourage more people to save, a leading pensions policy group said today.

Letting people withdraw or borrow money saved in a pension before retirement would increase the number of people saving and the amount saved, according to the Pensions Policy Institute (PPI).

At present, pension funds cannot be accessed before 50 – rising to 55 from April 6, 2010. This inflexibility is offputting to many savers, providing a disincentive to save, the PPI report concludes.

The PPI poll of 960 people found that 42 per cent of existing pension scheme members would be likely to increase savings if early access was an option. The same proportion of those not in a pension scheme said it would encourage them to start saving into one.

This has already been demonstrated in the US and New Zealand, which allow access to pension funds before retirement in specific circumstances. The institute said an early access system in the US had increased the number of pension savers and amounts stashed away for retirement, even although only around 20 per cent of people make use of the facility each year.

If a similar system were introduced in the UK, allowing pension funds to be tapped for a specific purposes, such as funding a house purchase, it could increase pension savings by around 30 per cent by 2050, the PPI claimed.

However, the report warned that income in retirement would be reduced if such a system was brought in without restrictions, or people did not increase contributions.

Chris Curry, research director at the PPI, an educational charity that analyses pension policy in the UK, said: “If people in the UK didn’t increase their contributions, or didn’t repay their loans, then pension funds could be 7 per cent lower."

B&CE Benefit Schemes, which funded the research alongside insurer Legal and General(L&G), said it would continue to campaign for barriers that prevent pension saving to be removed. Deputy chief executive John Jory said: "IIntroducing early access options could make a big difference to the numbers of people who save for their retirement.”

L&G's director Adrian Boulding said: “The government’s forthcoming pension reforms will need high levels of worker participation to succeed. Allowing controlled early access to pension fund money would be popular and increase both the breadth and depth of pensions coverage in the UK.”

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