Young workers struggling to get on to the property ladder would be able to tap their retirement savings to help fund a housing deposit, under ideas being explored by the UK pensions minister.
People saving for retirement cannot make use of their defined contribution pension savings before the age of 55 without suffering steep tax penalties.
But Guy Opperman, pensions minister, is now looking at ways to allow early access to pensions for buyers struggling to raise the funds to make their first purchase.
“If we are saving 8 per cent a year [into automatic enrolment pensions], the pots are going to grow pretty quickly,” said Mr Opperman, speaking at a webinar organised by Prospect magazine.
“Within two, three, four or five years, [savers] are going to be facing the wonderful reality of having over £10,000 or more in pensions but not necessarily having enough money for a deposit.”
Mr Opperman said he was “curious” to see if there was a product that could be created that would allow workers to borrow money from an automatic enrolment workplace pension scheme for a housing deposit, but also keep saving for retirement.
“The reality of automatic enrolment is that it is a savings pot,” Mr Opperman said. “It is not like a traditional type of pension and ultimately this is people’s money.”
Last week, Boris Johnson, prime minister, said it was “disgraceful” that levels of homeownership among the under-40s had plummeted over recent years, forcing millions of people to “pay through the nose to rent a home which they can’t truly love or make their own”.
The average house price in London is £480,000 versus £133,000 in the north of England, according to the Nationwide House Price Index.
Mr Opperman said that in his Northumberland constituency he could get on to the property ladder with a £5,000 deposit. “It’s not going to be a great house, but I can buy a house,” he said.
“Obviously this doesn’t help you in the southeast of England or London, but the simple point is that for low earners, a small amount of deposit can help get them on the housing ladder and they won’t be using their automatic enrolment [pension] pot for a very long period.”
Lloyds Banking Group, the UK bank, said more flexible access to pensions could make long-term savings accounts more popular.
“We did some research of 3,000 pension savers and 70 per cent of people in their twenties said they would put more money into a long-term savings product if it gave them flexibility to get on to the housing ladder at some point,” said Pete Clancy, head of pension policy with Lloyds Banking Group.
“People are terrified of not having rainy day savings and they really want a home for their family.”
Mr Opperman insisted his idea was not government policy, but said his “door was open” on ways to make pensions more flexible. Countries such as New Zealand and the US allow retirement savings to be tapped to fund home purchases.
James Brokenshire, communities and housing secretary provoked a backlash from sections of the pension industry last year when he said first-time buyers should be allowed to raid their pensions to purchase a home.
Phil Brown, director of policy at The People’s Pension, said it was “disappointing” to see that the government had not completely closed the door on a policy which would further inflate house prices, deplete young people’s retirement savings and transfer that money to older people selling property.
“Pensions are about providing much-needed retirement income for workers, with international evidence suggesting that pension pots are never adequately replenished once they have been accessed early,” he said.