Let First-Time Buyers Use Pension to Buy Home, says Government Minister

Pension experts have branded as "dangerous" a suggestion from housing minister James Brokenshire to use pension savings as deposits

Holly Black 3 June, 2019 | 3:57PM
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Young people should be able to use their pension savings to buy a house, one Government minister has said.

James Brokenshire, secretary of state for housing, has said that savers should be allowed to access the cash in their pension to use a deposit for their first home.

He told think tank Policy Exchange: “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 customers.”

But experts within the pension industry have branded the idea as “dangerous” and “short-termist”.

Tom Selby, senior analyst at AJ Bell, said: “Allowing people to raid their pensions is not a sensible answer. Chronic under-saving 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.”

Selby said that there was little evidence such a scheme would actually work, and could instead further stoke house price inflation, making it even harder to first-time buyers to get a foot on the ladder. 

He added: “This idea smacks of dangerous political short-termism. The further you go down this rabbit hole, the greater the risk you fundamentally undermine the central plinths of the UK’s retirement savings landscape.”

How Could the Two Work Together?

Steven Cameron, pensions director at Aegon, said that as saving for a house deposit and for retirement are the two greatest financial challenges facing younger generations, there is merit in looking at how the two could work together. House prices in the UK increased by an average of 1.4% in the year to March, according to the Office for National Statistics. The average UK home now costs £227,000.

However, he warned that those who dipped into their savings could regret it in the future as they would not be able to benefit from compound interest on their investments. “Those in a hurry to get on the housing ladder could face long-term regrets in retirement as money built up at a younger age in a pension is particularly valuable as they have far longer to benefit from investment growth.”

This isn’t the first time that the government has considered ways to help aspiring first-time homebuyers. Help to Buy Isas were launched in 2015 as a way to help young buyers to save a deposit. These accounts let you save or invest up to £3,000 a year, which gets a 25% top-up from the Government at the point you buy your first home.

These have since been superseded by the Lifetime Isa, which lets you save or invest up to £4,000 a year into a tax-free account. The money, which also gets a 25% top-up, can either be saved for retirement or accessed for a first-time home purchase.

Cameron added: “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 buyers, tackling the lack of housing supply.” 

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk