First-time buyers should be able to use their pension pots to top up their savings for a house deposit, the secretary of state for Housing, Communities and Local Government has said.
Speaking at think tank Policy Exchange this morning (June 3), the MP for Old Bexley and Sidcup, James Brokenshire, said allowing young people to dip into their pension pots to enable them to get on the housing ladder could "make a huge difference to millions of lives".
It is thought the secretary of state will urge whoever takes up the prime ministerial role in the next few months to push through new legislation that changes the current regulation surrounding pension withdrawal.
He said: "The average 35 to 44-year-old has a pension wealth of approximately £35,000.
"If a couple could combine their pension wealth, both potentially using a proportion to support a deposit, this would make a huge difference to millions of lives."
Just last week the Nationwide House Price Index showed raising the deposit for a home remained a real challenge for most prospective first-time buyers.
The index found even in Scotland and the north, where property is most affordable, it would take someone earning an average wage and saving 15 per cent of their take home pay each month more than five years to save a 20 per cent deposit.
This timeframe jumped to seven years in Wales and Northern Ireland, more than 10 in the south east and up to 15 years in the capital.
But Mr Brokenshire’s proposals have been hit with criticism from pension experts who claimed such buyers would face a shortfall in savings for retirement.
Tom Selby, senior analyst at AJ Bell, said the idea "smacks of dangerous political short-termism".
He said: "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."
Meanwhile former pensions minister Steve Webb pointed out there were already schemes in place — like the Lifetime Isa, where the government gives a 25 per cent boost to savings used for house deposits — for this exact purpose.
He said: "On top of this, we have to ask whether this will actually benefit young people getting on the ladder.
"There’s plenty of evidence that these schemes just ramp up house prices and the beneficiaries are the sellers, not the buyers.
"It also wouldn’t help the average 20-something year old as the amount they currently hold in their pension pot wouldn’t be a game changer in terms of house deposits."