Integrating pension with homeownership ambitions could enhance retirement security — but there is a need for tailored solutions that address individual circumstances, as retirement expectations and economic conditions evolve.
Delegates attending a recent Corporate Adviser round table event agreed that policy changes need to address a range of diverse challenges that include income volatility, wellbeing, financial education, engagement and saving behaviours.
CLICK HERE TO READ A FULL PDF OF THE ROUND TABLE EVENT
System review
Capital Cranfield professional trustee Andy Cheseldine called for a thorough analysis of behaviour around pension savings and housing finance before making any changes to the current system to make it easier for people to use retirement savings to buy their own home. He highlighted how these areas are interconnected, and cautioned that changes in one area could have unintended consequences across the board.
Wayhome founder and CEO Nigel Purves agreed, saying there needs to be a range of options. “There is no one-size-fits-all approach. I think we need different solutions for different people.”
Pensions Policy Institute research associate and lead Anna Brain added: “We need to make sure that we’re looking beyond homeownership and looking at affordable rent. It’s part of a bigger question.”
Shariah-compliant
Individual circumstances can vary hugely and are dependent not only on age, but other factors such as economic background, religion and ethnicity. Purves highlighted that the homeownership rate among Muslims in the UK is the lowest among religious communities at 46 per cent, compared to the national average of 65 per cent.
This percentage falls dramatically, especially among younger generations. He highlighted the difficulties Muslims have in securing homes due to a scarcity of Shariah-compliant options. Wayhome’s own product requires less than a 10 per cent payment, and remais Shariah-compliant.
This low participation doesn’t just apply to home ownership, but pension savings and investment too. Cheseldine highlighted Smart Pension’s partnership with Wahed, a Shariah-complaint investing platform. He noted that investment participation is lower in Muslim communities, but they believe that offering a more comprehensive Sharia-compliant option will significantly boost engagement.
He said: “We’re hoping that introducing a broader more Shariah-compliant option will increase that, and all the indications so far are that it is likely to massively increase our footprint in the Muslim community.”
He said employers are likely to be more motivated to adopt solutions and work with providers that offer inclusive products, catering to diverse employee needs.
Barnett Waddingham senior client relationship manager Katy Hayes also stressed the importance of providing a variety of financial solutions for a diverse workforce. She described assisting a university in developing a non-contributory DC scheme for non-academic employees who couldn’t afford the local government scheme. Shariah-compliant investment options were a must-have, but Hayes explained the challenge with the limited availability of such funds. This can also be an issue with auto-enrolment default options.
Hayes noted: ”The problem is that you still have to actively do something if we’re auto-enrolling you into a default. You can’t auto-enrol a small cohort of your workforce into a Shariah-compliant default.
“One of the barriers to pension participation in the Muslim community is that they’ve got to do something, and many do not know that the option is available to them.”
Cheseldine suggested that for an employer with a predominantly Muslim workforce, a more sophisticated Shariah-compliant default could be created for them.
Inclusive benefits & wellbeing
Delegates expect that some employers might choose to promote alternative solutions through the workplace as a way to provide an inclusive benefit to their employees.
Improving the financial resilience of staff can have wide-ranging benefits. Nest Insight executive director Will Sandbrook shared an example of an American haulage company utilising an emergency savings programme. The business anticipated that reducing financial stress would reduce the number of vehicle accidents, insurance claims, and occupational injuries.
Communication & engagement
Delegates discussed whether the same funds could be used both for retirement savings and homeownership, effectively “using the same money twice”. Purves argued that while homeownership has financial benefits, it also offers non-financial benefits such as stability and control over living conditions, which are lacking in the UK private rental sector.
Hayes said she has traditionally advised clients to encourage regular saving habits in employees under 30, increase contributions for those aged 30 to 50, and focus on retirement planning for those over 50. But she suggested that allowing younger employees to use part of their pension for property investment might increase engagement, particularly for a 20-year-old who might not otherwise be interested in pensions but is saving due to auto-enrolment.
She said: “A pension’s purpose is ensuring financial stability in retirement. However, this stability doesn’t solely rely on pensions but also on property ownership. Educating people about rental planning in retirement is crucial. There’s a generational shift in retirement expectations, with younger individuals less inclined to work into their mid-70s, underscoring the need for robust long-term financial planning
and education.”
Saving behaviours
Hayes suggested an approach in which an individual can only withdraw a portion of their savings after a set time which would show a commitment to saving. She stressed the necessity of consistent saving activity as proof of commitment, as opposed to viewing savings as a rainy day fund that may be used at any time.
Hayes said: “You can’t just put the money in today knowing that in nine months time you can take it out. You actually have to evidence that regularity of saving behaviour.”
Sandbrook highlighted that as many as 25 million people in the UK are to some degree subject to income volatility. He cautioned against creating systems based on the assumption of consistent income, citing the surge in volatile income from gig and zero-hours jobs.
He warned that connecting pension savings to housing subsidies could unfairly penalise individuals who save on an irregular basis. Instead, he proposed simplifying savings alternatives instead.
He said: “I’m not sure it’s about selling pension saving by offering a housing link. I think it’s about removing the risk of regret from just maximising saving.”
He added: “I strongly suspect that if you said to people, you can use your combined pensions wealth to help you buy a house, you would see member-driven consolidations skyrocket and they would consolidate with the provider who facilitated that in the best way.”
Future considerations
Sandbrook contended that resolving challenges in the private rental market should not be limited to pushing everyone to purchase property. Instead, a large portion of the answer must address the underlying flaws with the rental market.
He also highlighted the need to keep the established consensus around the auto-enrolment system, arguing against quick changes, and noting that new ideas should complement the current framework.
He agreed with gradually increasing contribution levels from 8 per cent to 12 per cent but ultimately cautioned against making too many changes to a retirement saving policy that has proven successful across multiple governments.