Govt plans for pension pots to fund mortgage deposits

Deputy prime minister Nick Clegg has unveiled plans to allow individuals to use sizable pension pots as a guarantee to help their children raise a deposit to buy their first home.

The plans are currently being investigated by the Department for Work and Pensions and the Treasury and would allow parents to use up to 25 per of their pension pots to guarantee first-time buyer mortgage deposits by setting aside part or all of their future tax-free cash lump sum entitlement.

The policy was initially considered for inclusion in the Government housing strategy in December 2011 but was dropped when it was published.

Yesterday, Clegg told the BBC’s Andrew Marr Show: “This is part and parcel of something which I think most people agree with, which is that as we fill in the black hole in the public finances we have also got to make sure that we do not put Humpty Dumpty back together again and make the same mistakes, that we rewire the British economy and make it fairer and give people more opportunities.”

Treasury chief secretary Danny Alexander told the BBC: “There are an awful lot of parents who don’t have enough cash to help their children get on the housing ladder. In many cases, they might well have built up a substantial pension pot – that’s their only asset – which they will be able, when they reach retirement age, to release a tax-free lump sum.”