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.”