A government minister’s suggestion young people be allowed to get on the housing ladder using their pension has been panned by industry professionals, who have argued the policy only stores up trouble for the future.
Young people should be allowed to dip into their pension pots to fund the deposit for their first home, housing secretary James Brokenshire (pictured) said in a speech.
Speaking at think tank the Policy Exchange, he 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.”
The Tory MP for Old Bexley and Sidcup argued such a policy would “empower” first-time buyers to get on the property ladder and allow young people the freedom to make the choice for themselves, if they would like the spend the money on property instead.
News of the idea was met with scepticism from industry professionals, however, with AJ Bell senior analyst Tom Selby saying the idea “smacks of dangerous political short-termism”.
“While the housing market clearly has its problems – particularly for first-time buyers who might struggle to afford the sizeable deposits now demanded by lenders – allowing people to raid their pensions is not a sensible answer,” he added.
Selby said encouraging people to drain their pension pots could exacerbate the already “chronic” problem of undersaving for later life.
“It is not clear why housing should be the only beneficiary of early pensions access,” he continued. “People could legitimately ask why, for example, it shouldn’t be extended to cover debt repayments or to help towards wedding costs.
“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.”
‘Long-term regret’
Aegon pensions director Steven Cameron, meanwhile, suggested such a policy could lead to long-term regret from young savers.
“The same money can’t be used twice and there is a huge risk that offering early access to pensions to pay house deposits will be a far too tempting ‘bird in the hand’ offer,” he warned.
“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 it has far longer to benefit from investment growth.”