First-time Buyer  

Pension shake up proposals spark debate

Pension shake up proposals spark debate

The housing minister’s proposals to shake up pension rules to help first-time buyers fund a deposit have caused a stir in the industry, with many experts unhappy about muddying a pension pot with a housing deposit.

On Monday (June 3), the MP for Old Bexley and Sidcup, James Brokenshire (pictured), suggested first-time buyers should be allowed to dip into their pension pots to enable them to get on the housing ladder.

Mr Brokenshire, the secretary of state for Housing, Communities and Local Government, has since come under fierce criticism that the proposals would leave a shortfall in retirement savings and that early access to pension pots would be tempting but unsustainable.

Former pensions minister Baroness Ros Altmann described the policy proposals as "misguided" and said initiatives such as these — which help younger people get onto the housing ladder — only inflate house prices due to extra demand.

She added that making it easier for older homeowners to downsize and building more houses would better help the housing market.

Kay Ingram, director of public policy at LEBC, agreed. She said: "For mid-lifers to raid their pension funds to buy property would be a grave mistake. People need both houses and pensions, they are not alternatives. Owning a house you cannot afford to live in in retirement is not a good option.

"The government needs to look at stamp duty if it wants to help first-time buyers. 

"There is evidence that the high levels of stamp duty for those seeking to move house are preventing downsizing and second home moves and fewer properties on the market sustain higher prices for first timers."

But Adam Tavener, chairman of Clifton Asset Management, an adviser firm and self-invested personal pension and small self administered scheme provider, had a different take.

He said the pensions community was showing a "knee-jerk" reaction to a new initiative which could leave consumers "likely to retire with a property and a good pension".

Mr Tavener said he had put such a proposal to HM Treasury last year, suggesting that first-time buyers could use a Sipp in a similar way small businesses were able to fund projects by dipping into a Ssas pot.

Under his proposal, the saver should be allowed to transfer their accumulated pension pot into a specially designed first-time buyer Sipp. The total in the Sipp can then be used to fund the deposit on a house.

In order to ensure the funds taken from the Sipp are paid back in full — so there is no shortfall in retirement years as critics have claimed — Mr Tavener suggested that the deposit repayments get absorbed into the mortgage repayments, charged at the same rate as the mortgage loan.

He said: "It’s like a 100 per cent mortgage, except more beneficial for the consumer and less risky for the lender. The consumer will benefit from the interest payments going into their pension pot, too."

Both the mortgage and deposit repayments would be collected by the lender, who would split the funds at the correct ratio and send the deposit repayments to the Sipp provider to be invested back into the pension.