Housing Secretary in backlash after proposing buyers raid pension pots to buy homes

Housing Secretary James Brokenshire has clashed with Government departments and pension experts after he proposed allowing first-time buyers to use their pension savings to raise a deposit to buy their home.

The idea was immediately quashed by former pensions minister Steve Webb, warning that it risks ruining people’s retirement.

The Department for Work and Pensions is also reported to have complained that it did not approve and had not been informed of the proposal.

There were also suggestions that Brokenshire’s proposal would simply hike house prices.

Speaking at the Policy Exchange think tank, Brokenshire said the Government should look at allowing an individual to use part of their pension pot as a deposit on a first-time home purchase.

He said: “We should be changing the necessary regulations to allow this to happen, protecting the integrity of pension investments but allowing lenders to innovate and design new products to bring this opportunity to consumers.

“It seems rather obtuse that we would deny people the opportunity to do this, given that we know those who own their own home by retirement are on average a) wealthier and b) do not have the burden of the largest expense in retirement – accommodation.

“And it is, after all, their money.”

He said the average 35 to 44-year-old has a pension wealth of approximately £35,000 and could combine that with a partner to support a deposit.

He added: “To those who are in their 20s and finding it difficult to save, this idea offers a genuine route to a deposit.

“We can say to that generation that there is a way, they do have a choice, they too will have that freedom.”

Brokenshire said similar schemes already exist within New Zealand’s Kiwisaver and in Canada where regulations were recently changed to allow people to use up to $35,000 of their pension savings to purchase a home.

A spokesman for Brokenshire said the timing of the introduction of such a scheme would be up to the next Prime Minister once Theresa May is replaced.

Such a change would require industry consultation, which could include elements such as a cap on withdrawals.

The spokesman denied this could create a bigger pensions crisis in the future, adding: “There are multiple models that would protect the integrity of pension investments.

“This assumes everyone would use the new freedom, which is not likely. The idea is about accessing their pension pots earlier and still having decades beyond to save.”

Internal departmental analysis by the Ministry of Housing, seen by EYE, suggests buyers may end up with a lower value pensions pot over 30 years, but would have higher monthly savings due to mortgage repayments being cheaper than renting and would have a financial asset by owning a property.

Webb, a pensions minister in the Conservative and Liberal Democrat coalition government and now director of policy at Royal London, said: “The amounts going into pensions for young people are pretty small already but at least they are starting young – if you empty that then they’ll end up working till they’re 75.

“It is fine to find giving young people new ways of buying a home but if there aren’t enough houses, then you have not helped them get a house and you’ve ruined their retirement.”

Tom Selby, senior analyst at AJ Bell, said: “This idea smacks of dangerous political short-termism.

“While the housing market clearly has its problems – particularly for first-time buyers who might struggle to afford the sizeable deposits now demanded by lenders – allowing people to raid their pensions is not a sensible answer.

“Chronic undersaving for later life is one of the biggest challenges facing society today, so a proposal which encourages people to drain their pension pots risks making this problem even worse.

“There is no guarantee that such a proposal would actually help people get on the housing ladder at all.

“Unless the Government dramatically boosts the supply of homes in the UK then this plan risks stoking house price inflation.

“It’s also not clear why housing should be the only beneficiary of early pensions access. People could legitimately ask why, for example, it shouldn’t be extended to cover debt repayments or to help towards wedding costs.

“The further you go down this rabbit hole the greater the risk you fundamentally undermine the central plinths of the UK’s retirement savings landscape.”

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10 Comments

  1. jeremy1960

    Does this guy ever engage his brain before opening his mouth? In any real job he would have been out months ago, indeed he would never have been given the job in the first place. Just another case of showing how useless and out of touch politicians are with the real world, when will real people with real experience be put in government?

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    1. DarrelKwong43

      Going against the grain here JC, but I thought it was an idea worth pursuing.  No point having a pot of money, when you need it most, but agree there are lots of other issues to factor in.

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      1. LetItGo

        Really, and what are they supposed to spend in retirement? I suppose they could always sell their house!

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  2. Will2

    An idea almost as stupid as abolishing s21 that gives landlord powers to manage seriously difficult tenancies which affect neighbours etc.

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  3. ArthurHouse02

    Panic is setting in with government, they see a potential house market slump on the horizon and are trying an to keep it inflated. This idea is horrendous and would cause long term harm to buyers and the housing market

    For christs sake just let the market adjust naturally, no gimmicks, no help to buy just let it settle and things long term will be rosy.

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  4. Davidevernden32

    Is this an idea that might have legs, why shouldn’t your pension fund have an investment in your home, if it helps you buy your home. A restricted scheme for first time buyers allowing them to invest in residential property for owner occupation could make a lot of sense, if it helps ftb to buy their first home.

    when the sipp rules were changed it was originally going to allow sipp holders to invest in both commercial and residential property. Residential property was dropped because of worries that it might trigger residential property price inflation.

    to introduce it to help ftb in a restricted way is less likely to cause this problem

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  5. James Wilson

    The Tory Party is now resorting to ever more desperate measures to keep house price inflation sustained.  They are doing it because that is what their Baby Boomer masters demand.  But more and more people in the real world are questioning in whose interests this inflation really is.  I sense a growing cause of discontent with ever higher house prices.

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  6. Orson67

    Does it really matter what James “Broken-record” Brokenshire says? Come the new leader and Broken -record will be on the back benches where he belongs and we will move on to our Nth (where N is a very large number) Minister for Housing.

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  7. RadPropertyDude

    It seems the nature of these government monkeys is that when faced with big issues, the go-to solution is to twerk policy or adjust a tax somewhere. Its the lazy persons answer to the bigger problem.

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  8. GeorgeHammond78

    Er, take out London salaries, the average value of a pension pot of a young person will be the square root of not a lot, so, how exactly would this work? Pensions isn’t rocket science, it’s simply the magic of compound interest over a long period of time. Your average non-London based 30 year old is going to be on say, £30k per annum if they’re lucky and if they went to Uni, have been working for circa 8 years (if they’re lucky). Their pension contributions to date will be no more than £12k max – again, if they’re lucky. And, don’t forget we’ve been in an incredibly low interest rate environment for all of their working lives thus far.

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