Housing minister James Brokenshire has proposed a change to pension rules which would allow younger savers to use these funds to help them onto the housing ladder.
In a speech to the Policy Exchange Brokenshire (pictured above) says: “We should be looking at allowing an individual to use part of their pension pot as a deposit on a first time home purchase.
“We should be changing the necessary regulations to allow this to happen, protecting the integrity of pension investments but allowing lenders to innovate and design new products to bring this opportunity to consumers.”
Many younger people now have workplace pension funds, thanks to auto-enrolment. According to the Office of National Statistics the average pension pot for people aged 35 to 44 is £35,000.
Brokenshire says: “Record numbers of people are putting into their pensions. It seems rather obtuse that we would deny people the opportunity to do this, given that we know those who own their own home by retirement are on average wealthier and do not have the burden of the largest expense in retirement – accommodation.”
However, Brokenshire’s proposals have been met with criticism from the pensions industry.
Former pensions minister and now director of policy at Royal London Sir Steve Webb says: “We need people to save short term for a deposit, and we need them to save longterm for a pension. The amounts going into pensions for young people are pretty small already but at least they are starting young – if you empty that then they’ll end up working till they’re 75.
He adds that this change may simply drive house prices up further, pointing out that it is supply, rather than demand that is causing problems in the housing market.
AJ Bell’s senior analyst Tom Selby adds: “This idea smacks of dangerous political short-termism.
“Chronic undersaving for later life is one of the biggest challenges facing society today, so a proposal which encourages people to drain their pension pots risks making this problem even worse.
“It’s also not clear why housing should be the only beneficiary of early pensions access. People could legitimately ask why, for example, it shouldn’t be extended to cover debt repayments or to help towards wedding costs.”
Aegon’s pensions director Steven Cameron adds: “Saving for a house deposit and making provision for retirement are the two greatest financial challenges facing younger generations. There is merit in looking at how to make housing and pension policy work together, and the previous chancellor attempted this with the Lifetime ISA — which offers a tax incentivised vehicle to save for either a first house deposit or for retirement.”
He points out that as this money cannot be used twice there’s a huge risk that offering early access to funds will be a far too tempting “bird in the hand” offer, which may have a damaging impact on long term retirement prospects.
He adds: “Another way of looking at housing and retirement policies together would be to waive stamp duty on retirees who want to downsize. This would free up family homes for younger generations, tackling the supply side issues.”