The Financial Conduct Authority (FCA) has expressed openness to allowing pension savings for house deposits, a move welcomed by industry leaders.
According to a speech last Friday by FCA CEO Nikhil Rathi, the FCA is exploring “bold ideas for a joined-up future”, including whether regular pension savers could be viewed more favourably by mortgage lenders.
He said: “Buying a first home. Paying down a mortgage. Building a pension. Drawing on housing wealth later in life. These are not isolated events – they are junctions on the same financial journey. Can we do more to design policy, regulation, products and services that reflect that?
“Going further, one of the biggest challenges prospective homeowners face is raising a deposit. Australia, New Zealand, the United States, Singapore and South Africa all permit citizens to leverage their pension savings to buy a first home”.
He acknowledged that there could be “trade-offs” if such a model were adopted in the UK, including “… the ability of savers to replace those withdrawn funds, [and] the impact on house prices”.
He added: “And as we think more radically about the mortgage market and options to support homeownership, what might this mean for saving, including for pensions, more broadly?.”
Industry leaders have welcomed the move, arguing for more flexible savings. Currently, pensions, emergency funds, and house deposits are separate, which may not be ideal. According to experts, a single financial product might ease retirement financial hardship and enable more individuals to purchase homes. They point out that, especially as homeownership declines and more seniors choose to rent, pension payments might not be sufficient to cover expenses.
LCP partner Steve Webb says: “It is very encouraging to hear the head of the FCA talking to positively about thinking radically about how we save. For too long we have saved in separate ‘buckets’ with money for a pension in one place, short-term savings for emergency needs in another, and money for a house deposit somewhere else.
“There is much to be said for trying to meet these needs in a single financial product, supported by workplace automatic enrolment, which could help more people become homeowners and reduce the risk of them having to fund a rent out of their modest retirement income. I look forward to the FCA’s consultation later this year and hope to see these ideas investigated in greater detail”.
The Pensions Management Institute chair Ruston Smith says: “Home ownership is declining in the UK, and three times more people are expected to be renting in retirement in the next 20 years. The cost of ‘renting in retirement’ alone could be equivalent to annual pension contributions of around 9 per cent of pay from the age of 22. The statutory minimum of 8 per cent wouldn’t therefore even cover the cost of rent, never mind put food in the fridge. The proposed FCA consultation will be a big step forward and is hugely welcome.
“The Lifetime Savings Initiative considered the learnings of those countries who have more developed retirement savings models where they look to support people in building short term savings and buying a first home as well as putting money away for retirement. With expected inadequate retirement savings for the next half century, people depend on wider lifetime savings to make ends meet in retirement.”
