Yesterday, communities secretary James Brokenshire gave a speech to the think tank Policy Exchange in which he mused that young people should be able to use their pension pot to fund their first property purchase.
A day later, and having had time to sleep on this idea, members of the financial services industry have reacted.
The Mortgage Mum founder Sarah Tucker has a mixed opinion. She says that it is challenging to save for a deposit, and this would provide one solution. However, she adds that the proposal requires a great deal of educational changes before it would work.
Tucker says: “Young people in particular may lose the motivation and inspiration to save from an early age towards a house deposit knowing full well they can just use their pension.
“If this is to be accepted, I think an addition to the education sector needs to be introduced alongside it, as well as a definite cap on the amount available to them.
“I agree that long term it has some potential issues, but we are all told that our pensions are no longer enough, and we need to look for other investment ideas to ensure our retirement is prepared for.
“One of the main investments available to us all is property, so there is an argument to suggest that this is all coming from the same pot.”
Trinity Financial Group communications director Aaron Strutt takes a similar standpoint to Tucker. He believes that it is difficult for young people to save enough money to get onto the property ladder and adds that, in some ways, it makes sense to use an individual’s pension pot to purchase a property.
However, he says that “pension contributions leave many people with less money to save for a deposit, but they are necessary to fund retirement.
“The mortgage repayments may well be cheaper than renting and they can make up the payments over time.
“Many people do not have enough money in their pension pot to take and have no option but to stay at their family home or rent.”
Clifton Asset Management chairman Adam Tavener backs many of the ideas in the proposal. He is of the opinion that, if Brokenshire’s idea did become policy, first-time buyers would benefit from the generous tax reliefs and employer contributions that can accompany pensions.
Tavener adds: “For many young people, buying their own home and regularly saving into a pension from their take home salary, is unrealistic and therefore the deposit savings tend to take priority, leading to significantly diminished pension prospects in later life.
“As our research has shown, this would mean that in many cases, a realistic deposit can be accumulated twice as fast as saving outside of the pension regime.”
MT Finance director Joshua Elash agrees with Tavener, outlining that it makes sense for people to invest part of their pension into their homes.
Elash comments: “Real estate as an investment class on a long timeline has consistently performed and there is no reason why it will not continue to do so in the years ahead.
“It is a happy marriage, giving real-time benefits by allowing the homeowner to enjoy a higher standard of living today, while also providing for tomorrow through the long-term upside gains to be had from investing in real estate. It is long overdue.”
Active Mortgage founder Gary Das adds: “There is a saying which is “safe as houses” and assuming that property prices continue to increase over the next 20 years in the way they have in the past 20 years, a property of today’s average value of £235,000 will be worth £1m by 2038.
“It means even if you are not making any monthly profit by the time you come to retire you could have a large amount of equity to replace your income.”