Retirement experts warn against using pension pots to get on property ladder
The Housing Secretary’s suggestion that people could use part of their pension to get on the property ladder could lead to savers regretting having dipped into their pots later on in life, retirement experts have warned.
James Brokenshire said “the challenge of turning ‘generation rent’ into the next generation of homeowners remains”.
Speaking at the Policy Exchange, Mr Brokenshire said the Help to Buy scheme has helped more than 210,000 families into their own home.
Giving his ideas on how consumers could be helped to be empowered further in the housing market, Mr Brokenshire said: “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.”
Reacting to the speech, Steven Cameron, pensions director at Aegon, said there is merit in looking at how the financial challenges of saving for a deposit and retirement work together.
Mr Cameron said: “But the same money can’t be used twice and there’s a huge risk that offering early access to pensions to pay house deposits will be a far too tempting ‘bird in the hand’ offer.
“Those in a hurry to get on the housing ladder could face long-term regrets in retirement as money built up at younger ages in pensions are particularly valuable as they have far longer to benefit from investment growth.”
Mr Cameron said another way of looking at housing and retirement policies together would be to waive stamp duty on retirees who want to downsize.
He said: “This would free up family homes for younger generations, tackling the supply side issues.”
During his speech, Mr Brokenshire said similar schemes already exist in Canada and New Zealand.
Mr Brokenshire said: “To those who are in their 20s and finding it difficult to save, this idea offers a genuine route to a deposit.”
He said the average 35 to 44-year-old has pension wealth of around £35,000.
There should also be a change in lenders’ approach to risk, Mr Brokenshire said, adding: “A track record of consistent rental, credit card, council tax and phone bill payments should carry far greater weighting than they currently do.
“We need to be making the regulatory environment easier for lenders to assess someone’s ‘real’ creditworthiness.”
Gregg McClymont, director of policy for the People’s Pension, said: “Introducing a policy of robbing Peter to pay Paul will not make housing any more affordable.
“Instead it’s likely to push up house prices and leave younger people worse off in the future.”
Tom Selby, a senior analyst at AJ Bell, said: “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.
“The Lifetime Isa already provides a substantial boost to those saving for a deposit on a first home.
“Any efforts to boost first-time buyers should focus on improving this product.”