Is James Brokenshire’s idea to allow first-time buyers to use their pension to buy a property a good one?
Adam Tavener, chairman, Clifton Asset Management
We put this idea to HM Treasury last year – in our proposal ‘Accelerating home ownership for first-time buyers and increasing pensions engagement among the younger workforce’. The struggle to get on the housing ladder is something that affects a huge number of young people, often eclipsing thoughts of all other types of financial planning, especially pensions, towards which there is still incredible apathy.
The pensions industry has consistently failed to make itself engaging and relevant to youngsters, in part because it has not needed to, and in part because lots of people with very small pots is the opposite of what is demanded by most IFAs’ business models. This proposal is an opportunity to right that wrong and get real engagement with younger savers.
From a numbers point of view, it is a no-brainer. An individual saving into a reasonable employer-sponsored pension scheme will accrue value almost twice as fast as someone saving through net income with no employer contribution. Therefore, in one worked scenario, a modest £250 per month net pension saving could return a cash deposit of well over £20,000 in only five years. Make this available as a deposit (for FTBs only) by way of a specialist Sipp product, secure it against the property through a second charge and repay it with interest over the term of the mortgage and you have done wonders for the financial circumstances of the individual.
Not only are they now benefiting from earlier property ownership and earlier pension engagement, they are also much more likely to view their pension as a positive asset, not a dreary obligation.
The goal of any government should be to create the architecture through which individuals can create their own prosperity. A relatively minor change to the rules (loanbacks have been available to SSAS holders via their limited companies since 1979, so this is hardly new territory) which would allow the linkage of pension saving and property ownership would dramatically improve the prosperity prospects of a generation. It also takes the pressure off the bank of mum and dad.
Jonathan Harris, director, Anderson Harris
Getting on the property ladder is hard work, with the huge gap between incomes and property prices forcing many first-time buyers to save up for years for the necessary deposit. Those who are lucky enough to call on the bank of mum and dad for a cash handout can save themselves some of this time and sacrifice. Even with an increasing number of lenders offering better rates at 90 or even 95 per cent LTV, with an average property price of £236,619 (according to Halifax), that still means a deposit of £12,000 to £24,000, and undoubtedly considerably more if you are buying in London or the South East.
So, in theory, the chance to get hold of some of the necessary funds would seem a good idea.
However, the whole point of pensions is that you cannot dip into them whenever you are short of a bob or two and fancy a new car, holiday or indeed deposit for a house.
As a nation we are woeful at saving for retirement as it is, so to enable those who are putting a little by each month to dip in and access that for a down payment on a property seems rather foolhardy.
There is also the argument that property prices are already so high because of the availability of cheap cash to fund purchases. If people could dip into their pensions as well, potentially that would make the situation even worse.
What is required is more homes being built, not the ability to pay more for the limited number of homes we do have. That is only going to make house price inflation even more of an issue.
Many people regard their property as their pension already, although that is ignoring the thorny issue of how they are actually going to release the cash they will need to live on in retirement while still keeping a roof over their heads.
Putting too many of your eggs in one basket is never a good idea – a good spread of investments, including equities and property, as well as a bit of cash for short-term spending, is a much more sensible approach to a happy retirement.