It’s not yet government policy, but this idea from the pensions minister is a controversial one.
Pensions minister Guy Opperman has suggested he is “curious” to see if first-time buyers could raid their retirement savings to fund a mortgage deposit, but experts are warning against this approach.
Opperman said during a Prospect magazine webinar yesterday that savers auto-enrolled onto workplace pension schemes could have £10,000 or more in their pot but nothing to put toward a mortgage.
He added that this wasn’t government policy but said his “door was open” to ideas about making pensions more flexible such as allowing them to be used for a mortgage deposit.
However, financial advisers and pension industry experts are cautious about this idea.
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Andrew Neligan, chartered financial planner for Neligan Financial, says: “The cost of housing has moved beyond the reach of many first-time buyers, especially if they don’t have the financial support of wealthier parents who can gift them money for deposits.
“However, I would be nervous about any mechanism that opens up hard earned pension funds for that purpose.
“With the state pension age increasing and the likelihood that it will make up a smaller part of retirement income in the future, individuals need to do everything they can to fund their own retirement.”
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He warned that withdrawing a lump sum would create a large hole that would take a lot to fill again, particularly when funds would have benefitted from compound interest to that point in time.
“The best way to get compound interest to work is to leave it alone to do its job over the long-term.”
Nigel Peaple, director of policy and research at the Pensions and Lifetime Savings Association, says this idea comes up every few years and while it sounds attractive, he warned it does not work in practice.
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Peaple says: “Really you need two different products: a pension that due to its long term nature allows you to invest in high risk, high-return assets to get a good long term outcome, and the other a savings account, which puts the money on deposit at low risk, low return, ready for you to access it as short notice without loss.
“People are not saving enough for retirement. The current level of automatic enrolment savings of 8% is not enough to ensure people get the retirements they expect.
“If they start spending their pension savings on a mortgage deposit they will have even less in retirement.”
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